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Ranking public expenditure programs

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  • Almlund, Mathilde
  • Andersen, Torben M.

Abstract

The marginal value of public funds (MVPF) has been proposed as a criterion for choosing between social programs, but its appropriateness has been debated. In this paper, we show the MVPF is indeed providing the correct ranking when deciding on marginal increases in net spending, but it is not a valid criterion for selecting policies on which to increase marginal up front spending. In this case, the correct criterion is the Marginal Net Social Benefit (MNSB). This distinction is crucial for policymakers who operate under a fixed up front budget. We demonstrate that previous arguments in favor of the opposite conclusion rely on implicit assumptions of constant returns to scale.

Suggested Citation

  • Almlund, Mathilde & Andersen, Torben M., 2025. "Ranking public expenditure programs," Economics Letters, Elsevier, vol. 250(C).
    • Handle: RePEc:eee:ecolet:v:250:y:2025:i:c:s0165176525001272
    DOI: 10.1016/j.econlet.2025.112290
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    More about this item

    Keywords

    Cost–benefit analysis; Marginal value of public funds; Net social benefits;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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