Benefit principle
The benefit principle is a concept in the theory of taxation from public finance. It bases taxes to pay for public-goods expenditures on a politically-revealed willingness to pay for benefits received. The principle is sometimes likened to the function of prices in allocating private goods. In its use for assessing the efficiency of taxes and appraising fiscal policy, the benefit approach was initially developed by Knut Wicksell and Erik Lindahl, two economists of the Stockholm School. Wicksell's near-unanimity formulation of the principle was premised on a just income distribution. The approach was extended in the work of Paul Samuelson, Richard Musgrave, and others. It has also been applied to such subjects as tax progressivity, corporation taxes, and taxes on property or wealth. The unanimity-rule aspect of Wicksell's approach in linking taxes and expenditures is cited as a point of departure for the study of constitutional economics in the work of James Buchanan.
Overview
The benefit principle takes a market-oriented approach to taxation. The objective is to accurately determine the optimal amount of revenue that should be spent on public goods.- More equitable/fair because taxpayers, like consumers, would "pay for what they get"
- Taxes are more akin to prices that people would pay for government services
- Consumer sovereignty - specific rather than general...charges are more direct...so the preferences of taxpayers, rather than government planners, are given more weight
- More efficient allocation of limited resources...it is less likely that funds will be overinvested in low priority programs.
- There's no such thing as a free lunch - taxpayers would have a better understanding of the costs of public goods
- Provides the foundation for voluntary exchange theory.
Examples
- Public college tuition
- National park admission fees
- Fuel taxes
- Bus fares
- Bridge tolls
Passages