However, the benefit principle does not work well for the efficient provision of public (and near-public) goods. Due to nonrival consumption, such goods are efficiently allocated with a zero price. If those who benefit directly from a public or near-public good pay a price equal to the value derived, as would be the case for private goods, then the "quantity demanded" declines and so too does the overall level of benefit generated. This is not efficient.

From the Market Side

This principle of tax fairness is most often applied to near-public goods that are characterized by nonrival consumption and the ability to exclude nonpayers, such as turnpikes, college education, and public parks. Because nonpayers can be excluded from consuming near-public goods, tax payments (entrance fees, tuition, etc.) can be based on the benefits received. It seems reasonable and fair that if nonpayers CAN be excluded from consumption, then they SHOULD be excluded. It seems reasonable and fair that those who benefit most from government services, those who are willing to pay for government services, should be the primary source of paying for these services.

What About Efficiency?

While the benefit principle is commonly used for near-public goods, taking this approach for public goods is exceedingly difficult. Due to the inability to exclude nonpayers from consuming public goods, identifying the benefits received, which would then be the basis for setting the amount of the tax, is virtually impossible. While everyone benefits from national defense, does everyone benefit equally? If not, then who benefits more? And can this be translated into different tax payments?

Ability-to-Pay Principle