Question

Denote hi as the marginal benefit of individual i at the optimal quantity of a public good. How much will individual i pay if there are N people and a Lindahl taxation scheme is used?

Answer 1

Lindahl tax is a type of taxation proposed by Swedish economist Erik Lindahl in 1919. Lindahl equilibrium is a theoretical state of an economy where the optimal quantity of public goods is produced and the cost of public goods is fairly shared among everyone.At Lindahl equilibrium, three conditions must be met: every consumer demands the same amount of the public good and thus agrees on the amount that should be produced, consumers each pay a price (known as a Lindahl tax) according to the marginal benefit they receive, and the total revenue from the tax covers the full cost of providing the public good. The Lindahl solution involves both the level of public good provision, and the method by which it is financed. Each person's tax bill equals the quantity of public goods consumed, times the price per unit. But each person's price will be different.