Lindahl tax

Who was Lindahl tax?

A Lindahl tax is a form of taxation in which individuals pay for the provision of a public good according to their marginal benefits. So each individual pays according to his/her marginal benefit derived from the public good. e.g. If A loves scenic beauty and likes to be close to nature he might be ready to pay 5 dollars per day for sitting in a park, whereas a college student who does not visit the park very often will not be ready to pay so much, but might agree to pay 1 dollar. So a person who values the good more pays more.

Lindahl taxes are sometimes known as benefit taxes. A Lindahl equilibrium is a state of economic equilibrium under such a tax. Individuals in a society have different preferences based on their nature, personal choice etc. So an individual's willingness to pay for a public good is a function of many factors, like income, preference etc. So a student will want to pay just 1 dollar for entering a museum but a business man will be ready to pay 10 dollars for the same museum. So in such cases the problem of supply of the public good, at optimal levels arises. Lindahl taxation is a solution for this problem.