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An Investigation into Alternative Representations of the Marginal Cost of Public Funds

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  • Lars Hokonsen
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    Abstract

    The literature on the marginal cost of public funds (MCF) and the marginal excess burden is presently a very rich one. A problem with this literature, is that several different measures are interpreted as MCF. This paper derives and compares some commonly used measures, and introduces an alternative. Performing a cross-comparison of the various measures seems to be a useful exercise in order to be able to distinguish between which measure is telling us what. Such a taxonomy might clarify the sense in which the different concepts should be used in future writings on this field. Copyright Kluwer Academic Publishers 1998

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    Bibliographic Info

    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 5 (1998)
    Issue (Month): 3 (July)
    Pages: 329-343

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    Handle: RePEc:kap:itaxpf:v:5:y:1998:i:3:p:329-343

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    Web page: http://www.springerlink.com/link.asp?id=102915

    Related research

    Keywords: Tax distortions; excess burden; cost of public funds;

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    1. Charles L. Ballard & Don Fullerton, 1993. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
    2. Wildasin, David E, 1984. "On Public Good Provision with Distortionary Taxation," Economic Inquiry, Western Economic Association International, vol. 22(2), pages 227-43, April.
    3. Hakonsen, L., 1997. "An Investigation into Alternative Representations of the Average and Marginal Cost of Public Funds," Papers 11/97, Norwegian School of Economics and Business Administration-.
    4. Sandmo, Agnar, 1974. "A Note on the Structure of Optimal Taxation," American Economic Review, American Economic Association, vol. 64(4), pages 701-06, September.
    5. Kay, J. A., 1980. "The deadweight loss from a tax system," Journal of Public Economics, Elsevier, vol. 13(1), pages 111-119, February.
    6. Fullerton, Don, 1991. "Reconciling Recent Estimates of the Marginal Welfare Cost of Taxation," American Economic Review, American Economic Association, vol. 81(1), pages 302-08, March.
    7. Bovenberg, A. L. & van der Ploeg, F., 1994. "Environmental policy, public finance and the labour market in a second-best world," Journal of Public Economics, Elsevier, vol. 55(3), pages 349-390, November.
    8. Triest, Robert K, 1990. "The Relationship between the Marginal Cost of Public Funds and Marginal Excess Burden," American Economic Review, American Economic Association, vol. 80(3), pages 557-66, June.
    9. Munk, Knud Jorgen, 1978. " Optimal Taxation and Pure Profit," Scandinavian Journal of Economics, Wiley Blackwell, vol. 80(1), pages 1-19.
    10. Snow, Arthur & Warren, Ronald Jr., 1996. "The marginal welfare cost of public funds: Theory and estimates," Journal of Public Economics, Elsevier, vol. 61(2), pages 289-305, August.
    11. Sandmo, A., 1997. "Redistribution and the marginal Cost of Public Funds," Papers 8/97, Norwegian School of Economics and Business Administration-.
    12. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
    13. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
    14. Mayshar, Joram, 1990. "On measures of excess burden and their application," Journal of Public Economics, Elsevier, vol. 43(3), pages 263-289, December.
    15. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August.
    16. Mayshar, Joram, 1991. "On Measuring the Marginal Cost of Funds Analytically," American Economic Review, American Economic Association, vol. 81(5), pages 1329-35, December.
    17. Schob, Ronnie, 1994. "On Marginal Cost and Marginal Benefit of Public Funds," Public Finance = Finances publiques, , vol. 49(1), pages 87-106.
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    Cited by:
    1. Sørensen, Anders, 2005. "R&D Subsidies and the Surplus Appropriability Problem," Working Papers 17-2005, Copenhagen Business School, Department of Economics.
    2. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier.
    3. Agnar Sandmo, 2001. "Bridging the Tax-Expenditure Gap: Green Taxes and the Marginal Cost of Funds," CESifo Working Paper Series 579, CESifo Group Munich.
    4. repec:ebl:ecbull:v:8:y:2007:i:9:p:1-10 is not listed on IDEAS
    5. José Manuel González-Páramo & Diego Martínez López, 2002. "Provisión eficiente de inversión pública financiada con impuestos distorsionantes," Economic Working Papers at Centro de Estudios Andaluces E2002/08, Centro de Estudios Andaluces.
    6. Lawrence H. Goulder & Roberton C. Williams III, 1999. "The Usual Excess-Burden Approximation Usually Doesn't Come Close," NBER Working Papers 7034, National Bureau of Economic Research, Inc.
    7. Bas Jacobs, 2010. "The Marginal Cost of Public Funds is One," CESifo Working Paper Series 3250, CESifo Group Munich.
    8. Warlters, Michael & Auriol, Emmanuelle, 2005. "The marginal cost of public funds in Africa," Policy Research Working Paper Series 3679, The World Bank.
    9. Lundholm, Michael, 2005. "Cost-Benefit Analysis and the Marginal Cost of Public Funds," Research Papers in Economics 2005:3, Stockholm University, Department of Economics.
    10. Bjørn Sandvik, 2003. "Optimal Taxation and Normalisations," CESifo Working Paper Series 1025, CESifo Group Munich.
    11. Diego Martínez López & A. Jesús Sánchez Fuentes, . "Optimal Provision Of Public Inputs In A Second Best Scenario (*)," Working Papers 17-05 Classification-JEL , Instituto de Estudios Fiscales.
    12. José Manuel González-Páramo, . "Midiendo El Coste Marginal En Bienestar De Una Reforma Impositiva," Working Papers 32-02 Classification-JEL , Instituto de Estudios Fiscales.

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