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Revisiting the Classical View of Benefit-Based Taxation

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  • Matthew Weinzierl

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.

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  • Matthew Weinzierl, 2014. "Revisiting the Classical View of Benefit-Based Taxation," NBER Working Papers 20735, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20735
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    Cited by:

    1. Alberto Alesina & Armando Miano & Stefanie Stantcheva, 2023. "Immigration and Redistribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 1-39.
    2. Robert Scherf & Matthew Weinzierl, 2020. "Understanding Different Approaches to Benefit‐Based Taxation," Fiscal Studies, John Wiley & Sons, vol. 41(2), pages 385-410, June.
    3. Lockwood, Benjamin B. & Weinzierl, Matthew, 2016. "Positive and normative judgments implicit in U.S. tax policy, and the costs of unequal growth and recessions," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 30-47.
    4. Alberto Alesina & Stefanie Stantcheva & Edoardo Teso, 2018. "Intergenerational Mobility and Preferences for Redistribution," American Economic Review, American Economic Association, vol. 108(2), pages 521-554, February.
    5. Klaus Prettner & Davud Rostam‐Afschar, 2020. "Can taxes raise output and reduce inequality? The case of lobbying," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(5), pages 455-461, November.
    6. Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2016. "Ex-ante Heterogeneity and Equilibrium Redistribution(Preliminary)," Working papers 2016rwp-93, Yonsei University, Yonsei Economics Research Institute.
    7. Felix Bierbrauer, 2016. "Effizienz oder Gerechtigkeit? Ungleiche Einkommen, ungleiche Vermögen und die Theorie der optimalen Besteuerung," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_03, Max Planck Institute for Research on Collective Goods.
    8. Alexis Anagnostopoulos & Eva Carceles‐Poveda & Yair Tauman, 2021. "Value Preserving Welfare Weights For Social Optimization Problems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1627-1653, November.
    9. Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2016. "Pareto Weights in Practice: A Quantitative Analysis Across 32 OECD Countries," Working papers 2016rwp-92, Yonsei University, Yonsei Economics Research Institute.
    10. Bird, Richard M. & Zolt, Eric M., 2015. "Fiscal Contracting in Latin America," World Development, Elsevier, vol. 67(C), pages 323-335.
    11. Spencer Bastani & Daniel Waldenström, 2021. "Perceptions of Inherited Wealth and the Support for Inheritance Taxation," Economica, London School of Economics and Political Science, vol. 88(350), pages 532-569, April.
    12. Bo Hyun Chang & Yongsung Chang & Sun-Bin Kim, 2018. "Pareto Weights in Practice: A Quantitative Analysis of 32 OECD Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 181-204, April.
    13. Weinzierl, Matthew, 2017. "Popular acceptance of inequality due to innate brute luck and support for classical benefit-based taxation," Journal of Public Economics, Elsevier, vol. 155(C), pages 54-63.
    14. Víctor Mauricio Castañeda-Rodríguez & Gaetano Lisi, 2024. "Can public efficiency increase tax morale? Evidence from 18 Latin American countries," Economics of Governance, Springer, vol. 25(2), pages 209-231, June.

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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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