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Should The Samuelson Rule Be Modified To Account For The Marginal Cost Of Public Funds?

Author

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  • Dan Usher

    (Department of Economics, Queen's University)

Abstract

Disputes over the marginal cost of public funds may be about its magnitude in any given time and place or about its role in cost-benefit analysis. This paper is about the latter. The Samuelson rule was devised for an omnipotent, omniscient and benevolent government. This paper is about how the Samuelson rule should be modified to take account of the impact upon total deadweight loss in the tax system from the required an increase in the tax rate to finance public projects as well as from the appearance of the projects themselves. A very simple device is employed to analyze these questions.

Suggested Citation

  • Dan Usher, 2006. "Should The Samuelson Rule Be Modified To Account For The Marginal Cost Of Public Funds?," Working Paper 1065, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1065
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1065.pdf
    File Function: First version 2006
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    References listed on IDEAS

    as
    1. Harry F. Campbell, 1975. "Deadweight Loss and Commodity Taxation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 441-447, August.
    2. Boadway, Robin & Keen, Michael, 1993. "Public Goods, Self-Selection and Optimal Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 463-478, August.
    3. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-298, April.
    4. Kaplow, Louis, 1998. "A Note on the Optimal Supply of Public Goods and the Distortionary Cost of Taxation," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(1), pages 117-125, March.
    5. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
    7. Liu, Liqun, 2003. "A marginal cost of funds approach to multi-period public project evaluation: implications for the social discount rate," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1707-1718, August.
    8. Kaplow, Louis, 1998. "A Note on the Optimal Supply of Public Goods and the Distortionary Cost of Taxation," National Tax Journal, National Tax Association, vol. 51(n. 1), pages 117-25, March.
    9. Mayshar, Joram, 1991. "On Measuring the Marginal Cost of Funds Analytically," American Economic Review, American Economic Association, vol. 81(5), pages 1329-1335, December.
    10. Liqun Liu, 2004. "The Marginal Cost of Funds and the Shadow Prices of Public Sector Inputs and Outputs," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 17-29, January.
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    Cited by:

    1. Dan Usher, 2006. "The Marginal Cost of Public Funds Is the Ratio of Mean Income to Median Income," Public Finance Review, , vol. 34(6), pages 687-711, November.

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    More about this item

    Keywords

    Samuelson rule; Marginal cost of public funds; Shadow price of public expenditure;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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