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The Costs of Taxation and the Marginal Efficiency Cost of Funds

Author

Listed:
  • Joel Slemrod

    (International Monetary Fund)

  • Shlomo Yitzhaki

    (International Monetary Fund)

Abstract

It is argued that taxation causes deadweight losses--from substitution, evasion, and avoidance activities--and direct, administrative and compliance, costs. Some of these social costs tend to be discontinuous and/or nonconvex. Because most models of taxation ignore some components of the social costs of taxation, their conclusions cannot be considered all-encompassing. An alternative approach to policy evaluation is to rely on a marginal efficiency cost of funds rule that can indicate appropriate directions of reforms. The paper discusses the merits, applicability, and limitation of this rule, as well as its relationship to other concepts.

Suggested Citation

  • Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
    • Handle: RePEc:pal:imfstp:v:43:y:1996:i:1:p:172-198
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    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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