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Revisiting the Classical View of Benefit-Based Taxation

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  • Matthew C. Weinzierl

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

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 consistent with 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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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 14-101.

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Length: 29 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:hbs:wpaper:14-101

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  9. Alexander M. Gelber & Matthew C. Weinzierl, 2012. "Equalizing Outcomes and Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources," NBER Working Papers 18332, National Bureau of Economic Research, Inc.
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  11. Edward N. Wolff, 2012. "The Asset Price Meltdown and the Wealth of the Middle Class," NBER Working Papers 18559, National Bureau of Economic Research, Inc.
  12. Louis Kaplow & Steven Shavell, 2001. "Any Non-welfarist Method of Policy Assessment Violates the Pareto Principle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(2), pages 281-286, April.
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  15. Marek Kapicka, 2006. "Optimal Income Taxation with Human Capital Accumulation and Limited Record Keeping," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 612-639, October.
  16. Moulin, Herve, 1987. "Egalitarian-Equivalent Cost Sharing of a Public Good," Econometrica, Econometric Society, Econometric Society, vol. 55(4), pages 963-76, July.
  17. Mervyn A. King, 1980. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," NBER Working Papers 0468, National Bureau of Economic Research, Inc.
  18. Benjamin B. Lockwood & Matthew C. Weinzierl, 2012. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution," NBER Working Papers 17784, National Bureau of Economic Research, Inc.
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Cited by:
  1. Benjamin B. Lockwood & Matthew Weinzierl, 2014. "Positive and Normative Judgments Implicit in U.S. Tax Policy, and the Costs of Unequal Growth and Recessions," Harvard Business School Working Papers 14-119, Harvard Business School.

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