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The MCPF under the pandemic

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  • Shigeo Morita

Abstract

This study examines the marginal cost of public funds (MCPF) to assess the optimality of preventive governmental expenditure based on the optimal nonlinear income taxation with preventive behaviors by both individuals and the government. We show that the optimal condition with respect to preventive government expenditure consists of two parts. One part reflects how the trade‐off between preventive expenditure and consumption should deviate from the laissez faire for high‐skilled and low‐skilled individuals, which is interpreted as the Pigou effect. The other part measures how mimickers benefit from preventive government expenditure, which is called the genetic effect. Whether the MCPF is greater than 1 or not depends on the relative magnitude of the Pigou effect and the genetic effect. Moreover, we examine the MCPF if the government cannot commit to a certain policy and if the types of individuals are completely separated and show that the Pigou effect should be modified.

Suggested Citation

  • Shigeo Morita, 2022. "The MCPF under the pandemic," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(5), pages 993-1015, October.
    • Handle: RePEc:bla:jpbect:v:24:y:2022:i:5:p:993-1015
    DOI: 10.1111/jpet.12593
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    References listed on IDEAS

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    1. Rabah Amir & Raouf Boucekkine, 2022. "Introduction to the special issue on new insights into economic epidemiology: Theory and policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(5), pages 861-872, October.

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