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The marginal cost of public funds in closed and small open economies

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  • Giuseppe Ruggieri

Abstract

The efficiency cost of taxation has become an increasingly important consideration in the evaluation of alternative tax policy options. This paper provides a review of estimates of the efficiency costs of taxation and presents some new estimates for small open economies. The available studies suggest that, in closed economies, the distortions from taxation are highest for corporate taxes and lowest for wage taxes. This efficiency ranking of different taxes does not hold in small open economies. It is shown that, in a small open economy, this ranking is reversed. Personal income taxes are less distortionary than wage taxes primarily because the link between domestic saving and investment is severed. Corporate taxes are also less distortionary for a variety of factors, such as changes in depreciation levels, payments to foreigners and terms of trade.

Suggested Citation

  • Giuseppe Ruggieri, 1999. "The marginal cost of public funds in closed and small open economies," Fiscal Studies, Institute for Fiscal Studies, vol. 20(1), pages 41-60, March.
    • Handle: RePEc:ifs:fistud:v:20:y:1999:i:1:p:41-60
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    1. Fullerton, Don & Henderson, Yolanda Kodrzycki, 1989. "The Marginal Excess Burden of Different Capital Tax Instruments," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 435-442, August.
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    Cited by:

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    3. Kristensen, Søren Rud & Siciliani, Luigi & Sutton, Matt, 2016. "Optimal price-setting in pay for performance schemes in health care," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 57-77.
    4. Esther Blanco & Javier Lozano, 2015. "Ecolabels, uncertified abatement, and the sustainability of natural resources: an evolutionary approach," Journal of Evolutionary Economics, Springer, vol. 25(3), pages 623-647, July.
    5. Mickaël Beaud & Thierry Blayac & Patrice Bougette & Soufiane Khoudmi & Philippe Mahenc & Stéphane Mussard, 2013. "Estimation du coût d'opportunité des fonds publics pour l'économie française," Working Papers halshs-01077141, HAL.
    6. Karsten STAEHR, 2008. "Estimates of Employment and Welfare Effects of Labour Income Taxation in a Country with a Flat: the Case of Estonia," EcoMod2008 23800135, EcoMod.
    7. Marloes Lammers & Lucy Kok, 2021. "Are active labor market policies (cost-)effective in the long run? Evidence from the Netherlands," Empirical Economics, Springer, vol. 60(4), pages 1719-1746, April.
    8. Arguedas, Carmen & van Soest, Daan P., 2009. "On reducing the windfall profits in environmental subsidy programs," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 192-205, September.
    9. Jung, Anna & Thöne, Michael & Elschner, Christina & Ernst, Christof & Overesch, Michael & Bergs, Christian & Schaefer, Thilo, 2009. "Evaluierung von Steuervergünstigungen. Band 3: Evaluierungsberichte (zweiter Teilband). Endfassung (Herbst 2009). Forschungsauftrag Projektnummer 15/07 des Bundesministeriums der Finanzen," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 110522.
    10. Leung Weiwen, 2013. "Benefit-cost analysis of accelerated replacement of Hong Kong’s pre-Euro IV buses," Journal of Benefit-Cost Analysis, De Gruyter, vol. 4(3), pages 335-360, December.

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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