Article | Fiscal Studies: The Journal of Applied Public Economics | June 2020

Understanding Different Approaches to Benefit-Based Taxation

by Robert Scherf and Matthew C. Weinzierl

Abstract

The normative principle of benefit-based taxation has exerted substantial influence on many areas of public finance, but it has been largely set aside in the modern theoretical approach to optimal income taxation, where welfarist objectives dominate. A prerequisite for that gap to close is the clarification of what benefit-based income taxation would mean, specifically in a first-best setting. This paper seeks to provide clear, accessible descriptions and novel graphical representations of four major approaches to first-best benefit-based taxation, explain how these approaches relate to each other, and apply them within the Classical Benefit-Based framework for optimal income taxation of Smith (1776).

Keywords: benefit-based taxation; public goods; Lindahl; Optimal taxation; Taxation;

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Citation:

Scherf, Robert, and Matthew C. Weinzierl. "Understanding Different Approaches to Benefit-Based Taxation." Fiscal Studies: The Journal of Applied Public Economics 41, no. 2 (June 2020): 385–410. (Also Harvard Business School Working Paper, No. 19-070, August 2019. (Revised January 2019), and NBER Working Paper Series, No. 26276, September 2019.)

About the Author

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Matthew C. Weinzierl
Joseph and Jacqueline Elbling Professor of Business Administration
Chair, MBA Required Curriculum
Business, Government and the International Economy

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