Tuesday, March 25, 2014
Matthew C. Weinzierl (Harvard Business School) presents Revisiting the Classical View of Benefit-Based Taxation at NYU today as part of its Tax Policy Colloquium Series hosted by Daniel Shaviro and Alan Auerbach:
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 Lindhal's methods are applied to that view of benefits, first-based optimal pollicy 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 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 on objective reflects the mixed normative reasoning behind prevailing policies, this model may offer a useful approach to positive optimal tax theory.