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The Marginal Cost of Funds With Nonseparable Public Spending

Author

Listed:
  • Shaghil Ahmed

    (Board of Governors of the Federal Reserve System)

  • Dean Croushore

    (Federal Reserve Bank of Philadelphia)

Abstract

This article provides new calculations of the welfare effects of fiscal changes when the publicly provided good is nonseparable in utility and production so that it affects economic agents' marginal decisions. The authors' results show that these nonseparabilities significantly alter the marginal cost of funds ( MCF ) that previous studies have calculated. The authors also report estimates of the nonseparable marginal benefits ( NSMB ) associated with aggregate government purchases. The net marginal cost offunds ( NMCF ), which is equal to MCF - NSMB, is in general positive over a wide range of parameter values that encompass empirically relevant specifications. Thus the nonseparable benefits by themselves are not sufficient for a marginal increase in aggregate government purchases of goods and services to be worthwhile.

Suggested Citation

  • Shaghil Ahmed & Dean Croushore, 1996. "The Marginal Cost of Funds With Nonseparable Public Spending," Public Finance Review, , vol. 24(2), pages 216-236, April.
    • Handle: RePEc:sae:pubfin:v:24:y:1996:i:2:p:216-236
    DOI: 10.1177/109114219602400206
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    References listed on IDEAS

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    3. Cristian F. Sepulveda, 2025. "“Public goods, labor supply and benefit taxation”," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(3), pages 872-894, June.
    4. Kaplow, Louis, 2006. "Public goods and the distribution of income," European Economic Review, Elsevier, vol. 50(7), pages 1627-1660, October.
    5. Liqun Liu, 2006. "Combining Distributional Weights and the Marginal Cost of Funds," Public Finance Review, , vol. 34(1), pages 60-79, January.
    6. Warlters, Michael & Auriol, Emmanuelle, 2005. "The marginal cost of public funds in Africa," Policy Research Working Paper Series 3679, The World Bank.
    7. Liqun Liu & Andrew J. Rettenmaier & Thomas R. Saving, 2004. "A Generalized Approach to Multigeneration Project Evaluation," Southern Economic Journal, John Wiley & Sons, vol. 71(2), pages 377-396, October.
    8. José Manuel González Páramo, 2003. "Midiendo el coste marginal en bienestar de una reforma impositiva," Hacienda Pública Española / Review of Public Economics, IEF, vol. 166(3), pages 115-147, September.
    9. Cecil E. Bohanon & John B. Horowitz & James E. McClure, 2014. "Saying Too Little, Too Late: Public Finance Textbooks and the Excess Burdens of Taxation," Econ Journal Watch, Econ Journal Watch, vol. 11(3), pages 277-296, September.
    10. 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.
    11. Mickael Beaud & Thierry Blayac & Patrice Bougette & Soufiane Khoudmi & Philippe Mahenc & Stéphane Mussard, 2013. "Estimation du coût d'opportunité des fonds publics pour l'économie française," Studies and Syntheses 14-01, LAMETA, Universtiy of Montpellier, revised Oct 2014.
    12. Strand, Jon, 2009. ""Revenue management"effects related to financial flows generated by climate policy," Policy Research Working Paper Series 5053, The World Bank.
    13. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, University Library of Munich, Germany.
    14. ERBIL Can, 2010. "Trade Taxes Are Better ?!? Short Answer: No," EcoMod2003 330700048, EcoMod.
    15. Louis Kaplow, 1993. "Should the Government's Allocation Branch be Concerned about the Distortionary Cost of Taxation and Distributive Effects?," NBER Working Papers 4566, National Bureau of Economic Research, Inc.
    16. Devarajan, Shantayanan & Robinson, Sherman, 2002. "The influence of computable general equilibrium models on policy," TMD discussion papers 98, International Food Policy Research Institute (IFPRI).
    17. José Manuel González-Páramo, "undated". "Midiendo El Coste Marginal En Bienestar De Una Reforma Impositiva," Working Papers 32-02 Classification-JEL , Instituto de Estudios Fiscales.

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