How would Lindahl propose we tax to provide a public good? Why would not Lindahl simply...

How would Lindahl propose we tax to provide a public good?

Why would not Lindahl simply tax everyone the same amount?

Why is Lindahl's approach not possible?

Solutions

Expert Solution

1) How would Lindahl propose we tax to provide a public good?

Answer: Lindahl propose that we tax according to the individuals marginal benefits i.e. the amount of utility or satisfaction they derive from the consumption of an additional unit of the public good.

2) Why would not Lindahl simply tax everyone the same amount?

Answer: As individuals are different in nature, thus differ in their preferences, and consensus requires people to pay a somewhat different tax for every service, or good that they consume. Thus even with everyone consuming the same quantity of the public good, people willingness to pay will differ among others. Thus Lindahl would not simply tax everyone the same amount

3) Why is Lindahl's approach not possible?

Answer: When information about marginal benefits can be obtained only from the individuals themselves, they tend to under report the valuation for a specific good, thus arises the problem of preference revelation. People may lower the tax cost by under reporting the benefits derived from the public service or good. This informational problem reflects that survey-based Lindahl taxation approach is not possible

Rahul Sunny answered 1 year ago

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