What Is the Lindahl Equilibrium?
The Lindahl equilibrium is a type of taxation proposed by Swedish economist Erik Lindahl in 1919, in which individuals pay for the provision of a public good according to their marginal benefits, to determine the efficient level of provision for each public good. Under this paradigm, individuals pay taxes based on the level of personal utility they enjoy from a public good. In other words, the Lindahl tax represents an individual’s share of a given economy’s collective tax burden.
Understanding the Lindahl Equilibrium
In the equilibrium state, all individuals consume the same quantity of public goods but likely face different prices because some people may value a particular good more than others. The Lindahl equilibrium price is the resulting amount paid by an individual for his or her share of public goods. Lindahl prices can be viewed as individual shares of the collective tax burden of an economy, and the sum of Lindahl prices equals the cost of supplying public goods such as national defense and other common programs and services that collectively benefit a society.
The Lindahl equilibrium has more of a philosophical application than a practical use, because it's nearly impossible to evaluate how much each person values a certain good. This effectively restricts the Lindahl equilibrium's real-world function.