Benefit principle

The benefit principle is a concept in the

just income distribution. The approach was extended in the work of Paul Samuelson, Richard Musgrave,^[3] and others.^[4] It has also been applied to such subjects as tax progressivity, corporation taxes, and taxes on property or wealth.^[5] 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.^[6]^[3]

Overview

Thus, considered in themselves, in their own nature, in their normal state, and apart from all abuses, public services are, like private services, purely and simply acts of exchange. - Frédéric Bastiat

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
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

Here are a few of the public services that are currently funded, in some part, on the basis of the benefit principle...

Public college tuition (only paid by the people who attend public colleges)
National park admission fees (only paid by the people who visit public parks)
Fuel taxes
(only paid by the people who purchase fuel)
Bus fares (only paid by the people who take the bus)
Bridge tolls (only paid by people who use the bridge)

Passages

Until people are made to bear the full costs of their decisions, those decisions are unlikely to be socially sound, in this as in other areas of public policy. - Bird, Richard M. (1976). Charging for Public Services: A New Look at an Old Idea

The doctrine of consumer sovereignty is applied to the provision of social goods in so far as the consumer buys national defence, police service, fire protection and electricity or water supply from the public sector of his own choice and according to the benefits received just as he buys food, clothes, fuel, tooth brushes and automobiles from the private producers. - P.C. Jain (1989), The Economics of Public Finance, 2nd ed., v. 1, p. 63.

Criticism

The

true preferences.^[7]

References

^ Fritz Neumark and Charles E. McLure, Jr., 2013. "Taxation," The Benefit Principle, Encyclopædia Britannica, preview.
^ • Richard A. Musgrave and Peggy B. Musgrave, 1973. Public Finance in Theory and Practice, ch. 3, "The Theory of Social Goods," C. Efficient Provision of Social Goods, p.68.
• Richard A. Musgrave and Alan T. Peacock, ed., [1958] 1994. Classics in the Theory of Public Finance, pp. 72-119 for discussion and the relevant publications. Description and contents.
^ ^a ^b Bernd Hansjürgens, 2000. "The Influence of Knut Wicksell on Richard Musgrave and James Buchanan", Public Choice, 103(1/2), pp. 95-116.
^ Richard A. Musgrave, 1959. The Theory of Public Finance, ch. 4, "The Benefit Approach," pp. 71-89.
^ Richard A. Musgrave and Peggy B. Musgrave, 1973. Public Finance in Theory and Practice (under "Subject Index," Benefit Principle).
^ James M. Buchanan, 1986. "The Constitution of Economic Policy," V. The Constitution of Economic Policy, Nobel Prize lecture. Republished in 1987, American Economic Review, 77(3), pp. 243-250.
^ The Economics of Earmarked Taxes

Marciano, Alain - Why markets do not fail. Buchanan on voluntary cooperation and externalities
Hansjürgens, Bernd - The influence of Knut Wicksell on Richard Musgrave and James Buchanan
Brown, Daniel J. - The Case For Tax-Target Plans
Holcombe, Randall G. - The Elgar Companion to Public Choice
Bird, Richard M. and Tsiopoulos, Thomas - User Charges for Public Services: Potentials and Problems 1997
Thirsk, Wayne R. - Charging for Public Services: A New Look at an Old Idea by Richard M. Bird Review by: Wayne R. Thirsk
Ghosh & Ghosh - Economics Of The Public Sector
Cordes, Joseph J. - Taxation & Tax Policy
Meerman, Jacob - Are public goods public goods? p. 149 describes James M. Buchanan and Gordon Tullock as the "foremost proponents of the 'benefit principle'."
Seligman, R.E. - Progressive Taxation in Theory and Practice. 1908
Samuelson, Paul A. - The Pure Theory of Public Expenditure
Mankiw, Gregory - Principles of Economics
Hildreth, W. Bartley - Hdbk on Taxation
Howard, M.C. - Public Sector Economics For Developing Countries
Basu, Subhajit - Global Perspectives on E-Commerce Taxation Law

[1] Fritz Neumark and Charles E. McLure, Jr., 2013. "Taxation," The Benefit Principle, Encyclopædia Britannica, preview.

[2] • Richard A. Musgrave and Peggy B. Musgrave, 1973. Public Finance in Theory and Practice, ch. 3, "The Theory of Social Goods," C. Efficient Provision of Social Goods, p.68.
• Richard A. Musgrave and Alan T. Peacock, ed., [1958] 1994. Classics in the Theory of Public Finance, pp. 72-119 for discussion and the relevant publications. Description and contents.

[Hansjürgens2000-3] Bernd Hansjürgens, 2000. "The Influence of Knut Wicksell on Richard Musgrave and James Buchanan", Public Choice, 103(1/2), pp. 95-116.

[4] Richard A. Musgrave, 1959. The Theory of Public Finance, ch. 4, "The Benefit Approach," pp. 71-89.

[5] Richard A. Musgrave and Peggy B. Musgrave, 1973. Public Finance in Theory and Practice (under "Subject Index," Benefit Principle).

[6] James M. Buchanan, 1986. "The Constitution of Economic Policy," V. The Constitution of Economic Policy, Nobel Prize lecture. Republished in 1987, American Economic Review, 77(3), pp. 243-250.

[7] The Economics of Earmarked Taxes

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