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      Understanding Different Approaches to Benefit-Based Taxation
      30 Jan 2019Working Paper Summaries

      Understanding Different Approaches to Benefit-Based Taxation

      by Robert Scherf and Matthew C. Weinzierl
      Benefit-based taxation—where taxes align with benefits from state activities—enjoys popular support and an illustrious history, but scholars are confused over how it should work, and confusion breeds neglect. To clear up this confusion and demonstrate its appeal, we provide novel graphical explanations of the main approaches to it and show its general applicability.
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      Author Abstract

      Despite substantial normative and positive appeal, the idea of benefit-based taxation plays a minor role in modern tax theory. One obstacle to its playing a greater role is confusion over the many ways in which theorists have argued that benefit-based taxes should be determined. In this paper, we provide clear descriptions and graphical representations of the four major approaches to benefit-based taxation: Lindahl (1919), Moulin (1987), Brennan (1976a), and Hines (2000). We also show how these approaches can be applied to Smith’s theory of so-called Classical Benefit-Based Taxation, the most prominent general benefit-based optimal tax framework and a potential focal point for generating consensus on the specifics of benefit-based taxation.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: January 2019
      • HBS Working Paper Number: HBS Working Paper #19-070
      • Faculty Unit(s): Business, Government and International Economy
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      Matthew C. Weinzierl
      Matthew C. Weinzierl
      Joseph and Jacqueline Elbling Professor of Business Administration
      Chair, MBA Required Curriculum
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