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Identifying an Australian ‘Shadow’ Benefit / Cost Ratio for Public Projects

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Author Info
Lawrence, Craig

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Abstract

This paper examines the social opportunity cost of a hypothetical public project in Australia and compares these values with the cost of the project as measured by factor prices. Since 2001, the Australian taxation system has included an ad valorem tax, the Goods and Services Tax, however relatively little analysis of the impact of this tax on public project evaluation methods has been undertaken. This tax creates divergences between social opportunity cost and conventional cost measures. Therefore it is recommended that shadow prices be applied to pubic projects. Following Campbell (1975), a shadow price can be introduced into Australian project evaluation in the form of a cut-off benefit cost ratio. The calculations reported on in the paper indicate that this ratio lies between 1 and 1.3 for public projects in Australia.

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File URL: http://mpra.ub.uni-muenchen.de/13481/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13481.

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Date of creation: 11 Feb 2009
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Handle: RePEc:pra:mprapa:13481

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Related research
Keywords: allocative efficiency; cost benefit analysis; efficiency; optimal taxation; project evaluation; social discount rate;

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Find related papers by JEL classification:
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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References listed on IDEAS
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  1. John Creedy, 2007. "Discounting and the Social Time Preference Rate," Department of Economics - Working Papers Series 989, The University of Melbourne. [Downloadable!]
  2. Prof Harry Campbell & Assoc Prof Richard Brown, 2003. "A Multiple Account Framework For Cost-Benefit Analysis," Discussion Papers Series 328, School of Economics, University of Queensland, Australia. [Downloadable!]
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  3. Harry F. Campbell, 1975. "A Benefit/Cost Rule for Evaluating Public Projects in Canada," Canadian Public Policy, University of Toronto Press, vol. 1(2), pages 171-175, Spring. [Downloadable!] (restricted)
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This page was last updated on 2009-12-1.

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