A model of labor supply is used to calculate Australia's marginal cost of public funds, which is the appropriate cut-off benefit-cost ratio for an additional public project. The labor-supply model incorporates effective average and marginal tax rates faced by the representative household in each gross income decile. These rates are estimated from the Australian Bureau of Statistics' 1988-89 Household Expenditure Survey. A simulation analysis is performed to calculate the effect on labor supply of a 1 percent increase in marginal tax rates. The estimated changes in tax revenues and deadweight loss in each decile are used to estimate the marginal cost of public funds. Copyright 1997 by The Economic Society of Australia.
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Article provided by The Economic Society of Australia in its journal The Economic Record.
Volume (Year): 73 (1997) Issue (Month): 220 (March) Pages: 22-34 Download reference. The following formats are available: HTML
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