Revisiting the Classical View of Benefit-Based Taxation

34 Pages Posted: 8 Dec 2014 Last revised: 16 Dec 2014

See all articles by Matthew Weinzierl

Matthew Weinzierl

Harvard Business School - Business, Government and the International Economy Unit

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Date Written: December 2014

Abstract

This paper explores how the persistently popular "classical" logic of benefit-based taxation, in which an individual's benefit from public goods is tied to his or her income-earning ability, can be incorporated into modern optimal tax theory. If Lindahl's methods are applied to that view of benefits, first-best optimal policy can be characterized analytically as depending on a few potentially estimable statistics, in particular the coefficient of complementarity between public goods and innate talent. Constrained optimal policy with a Pareto-efficient objective that strikes a balance–controlled by a single parameter–between this principle and the familiar utilitarian criterion can be simulated using conventional constraints and methods. A wide range of optimal policy outcomes can result, including those that match well several features of existing policies. To the extent that such an objective reflects the mixed normative reasoning behind prevailing policies, this model may offer a useful approach to a positive optimal tax theory.

Suggested Citation

Weinzierl, Matthew, Revisiting the Classical View of Benefit-Based Taxation (December 2014). NBER Working Paper No. w20735. Available at SSRN: https://ssrn.com/abstract=2535187

Matthew Weinzierl (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

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