Revisiting the classical view of benefit-based taxation
By: Matthew Weinzierl
Contributors: Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 14-101; Working paper (Harvard Business School) -- 14-101
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 30
Description: 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.
Notes: "April 2014. (Revised September 2014.)" -- Publisher's website.

Includes bibliographical references (pages 28-30).