Lindahl tax

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A Lindahl tax is a form of taxation conceived by Erik Lindahl in which individuals pay for public goods according to their marginal benefits. In other words, they pay according to the amount of satisfaction or utility they derive from the consumption of an additional unit of the public good. Lindahl taxation is designed to maximize efficiency for each individual and provide the optimal level of a public good.

Lindahl taxes can be seen as an individual's share of the collective tax burden of an economy. The optimal level of a public good is that quantity at which the willingness to pay for one more unit of the good, taken in totality for all the individuals is equal to the marginal cost of supplying that good. Lindahl tax is the optimal quantity times the willingness to pay for one more unit of that good at this quantity.^[1]