Working Paper: NBER ID: w26276
Authors: Robert Scherf; Matthew 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; Optimal Income Taxation; Public Finance
JEL Codes: H21; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| benefit-based taxation (H20) | distribution of income-earning abilities (D31) |
| public goods provision (H41) | individual productivity (O49) |
| public goods provision (H41) | preferences (D11) |
| benefit-based taxation (H20) | preferences (D11) |
| method of taxation (H20) | individuals' welfare (I31) |
| method of taxation (H20) | efficiency of public goods provision (H49) |