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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 bene.t based taxation, in which an individual's bene.t 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 endowed ability. 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

  • Matthew C. Weinzierl, 2014. "Revisiting the Classical View of Benefit-Based Taxation," Harvard Business School Working Papers 14-101, Harvard Business School, revised Jan 2016.
  • Handle: RePEc:hbs:wpaper:14-101
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    References listed on IDEAS

    as
    1. Weinzierl, Matthew, 2014. "The promise of positive optimal taxation: normative diversity and a role for equal sacrifice," Journal of Public Economics, Elsevier, vol. 118(C), pages 128-142.
    2. Mutsumi Matsumoto, 2001. "Public Input Provision in an Optimal Income Tax Model," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(1), pages 1-12, December.
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    4. Brennan, Geoffrey, 1976. "Public Goods and Income Distribution: A Rejoinder to the Aaron-McGuire Reply," Econometrica, Econometric Society, vol. 44(2), pages 405-407, March.
    5. Alexander Gelber & Matthew Weinzierl, 2012. "Equalizing Outcomes vs. Equalizing Opportunities: Optimal Taxation when Children's Abilities Depend on Parents' Resources," Harvard Business School Working Papers 13-014, Harvard Business School, revised Mar 2014.
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    10. Emmanuel Saez & Stefanie Stantcheva, 2016. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," American Economic Review, American Economic Association, vol. 106(1), pages 24-45, January.
    11. King, Mervyn A, 1983. "An Index of Inequality: With Applications to Horizontal Equity and Social Mobility," Econometrica, Econometric Society, vol. 51(1), pages 99-115, January.
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    16. 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.
    17. Benjamin B. Lockwood & Matthew Weinzierl, 2012. "De Gustibus non est Taxandum: Heterogeneity in Preferences and Optimal Redistribution," Harvard Business School Working Papers 12-063, Harvard Business School, revised Sep 2014.
    18. 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.
    19. James M. Buchanan & Richard A. Musgrave, 1999. "Public Finance and Public Choice: Two Contrasting Visions of the State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024624, January.
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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, revised Oct 2014.
    2. repec:eee:pubeco:v:155:y:2017:i:c:p:54-63 is not listed on IDEAS
    3. 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.
    4. 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.
    5. Bird, Richard M. & Zolt, Eric M., 2015. "Fiscal Contracting in Latin America," World Development, Elsevier, vol. 67(C), pages 323-335.
    6. repec:red:issued:16-35 is not listed on IDEAS

    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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