Discussion
On which one of the following is the benefit-received principle of taxation based, if it is to achieve optimality?
Answer: D
It is based on the marginal benefit received.
Under the benefit principle, a taxpayer should pay in proportion to the benefit received from public services. For the outcome to be optimal, the tax paid at the margin must equal the marginal benefit - the Lindahl condition. Ability to pay is the rival principle, not part of this one.
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