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Social Security Transfers and the Marginal Cost of Public Funds

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  • Geir Bjertnaes

Abstract

Recent estimates of the marginal cost of public funds differ substantially. Some studies argue that the efficiency cost of taxation counter the welfare gain connected to redistribution of income. Hence, the efficiency cost of taxation should not be included as a cost of public goods provision. Kleven and Kreiner (2006), however, argue that the cost of public goods provision may double in countries with a large welfare state due to exit from the labor market. This study shows that the cost of public goods provision should be increased with less than 15 percent when categorical transfers redistributed income even though taxation may lead to exit from the labor market.

Suggested Citation

  • Geir Bjertnaes, 2015. "Social Security Transfers and the Marginal Cost of Public Funds," CESifo Working Paper Series 5689, CESifo.
    • Handle: RePEc:ces:ceswps:_5689
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    References listed on IDEAS

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    More about this item

    Keywords

    marginal cost of public funds; optimal income taxation; categorical transfers; tagging;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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