Benefit Approach

Discipline: Economics

Benefit approach principle is a traditional taxation principle which holds that people benefiting from government spending should be the ones to pay taxes to finance these expenditures, whatever and whichever they may be.

Benefit approach principle is developed by English philosophers Thomas Hobbes (1588-1679) and John Locke (1632-1704), and by Dutch jurist Hugo Grotius (1583-1645).

Under the benefit approach system, individuals pay for each and every one of the government-provided goods and services that they consume. They are not charged any taxes for goods and services they do not benefit from. Therefore, the taxes people pay under the benefit approach principle are in accordance with the benefits they receive.

A practical problem in the benefit appraoch system is the difficulty of measuring how much benefit an individual actually receives from the government. Another problem is that many of the government-provided goods and services cannot be privatized due to the free rider problem.

The benefit approach principle was refined by Swedish economist Erik Lindahl (1891-1960) in the 20th century.

Also see: ability-to-pay principle, equal sacrifice theory

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