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Lindahl Model
I've got a problem with understanding the Lindahl model that explains the benefit principle of taxation.I would be grateful to anyone who could throw some light on it.Thanks.
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Permalink Reply by Cal Miles on -
Lindahl's model treats the issue of tax-share determination as one of bilateral exchange in an "isolated" community with two categories of taxpayers, (1) "well-to-do" and (2) "relatively poor." Lindahl then proposes that distribution of the tax shares be considered settled by free argument, or "a kind of free exchange" via politics. Lindahl assumed that initially political blocs would not influence this political "free exchange" (This is, of course, an unrealistic assumption).
Lindahl's model is straightforward. Based on this free political exchange, both parties equally safeguard the economic rights to which they are entitled under the existing property order and the price of public goods (taxes) will tend to correspond to marginal utility for each interested party. This means taxes will equal the affected voter's (or group of voters') marginal valuation of the public good. Thus, this ensures the so-called "benefit principle of taxation."
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