Budget Incidence Reconsidered

The paper develops a theoretical framework for analyzing budget incidence. The welfare gain of consuming a public good is determined by the benefit approach. On this basis the incidence of taxation, benefits and net benefits is investigated. Measures of progression are proposed. It is shown that the joint incidence of governmental taxation and expenditure can be related to residual progression and the income elasticity of the marginal willingness to pay for the public good. An example demonstrates that progressive taxation can be overcompensated by a distribution of benefits which favors the rich.