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Estimating the Social Marginal Cost of Public Funds

  • Shun-ichiro Bessho

    (Faculty of Economics, Keio University, Tokyo, Japan)

  • Masayoshi Hayashi

    ()

    (Faculty of Economics, University of Tokyo, Tokyo, Japan)

In this study, we recast the formula of the social marginal cost of public funds (SMCF) and highlight the role of what we call individual marginal costs of public funds (IMCF). After elaborating on aspects of distributional weights, we estimate the wage elasticity of labor supply and the IMCFs on a household basis. This allows us to explore not only the distributions of the elasticity and the IMCFs but also their relations to household income, which helps us assess the assumptions made in previous studies. Further, we use the SMCF estimates to evaluate the system of personal income taxes in Japan.

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Article provided by in its journal Public Finance Review.

Volume (Year): 41 (2013)
Issue (Month): 3 (May)
Pages: 360-385

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Handle: RePEc:sae:pubfin:v:41:y:2013:i:3:p:360-385
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