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The Marginal Cost of Public Funds is the Ratio of Mean Income to median Income

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  • Usher, Dan

Abstract

The marginal cost of public funds is the equilibrium price at the intersection of the appropriately-defined demand curve for and the supply curve of public expenditure. In a world with identical people and with no excess burden of taxation, that price would have to be 1. Otherwise the median voter's choice of a demogrant - or of its opposite, a head tax - fixes the marginal cost of public funds at the ratio of the mean income to the median income. A proof of this assertion is presented not for its realism, but because it calls attention to the interaction of the different influences upon the marginal cost of public funds.
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Suggested Citation

  • Usher, Dan, 2002. "The Marginal Cost of Public Funds is the Ratio of Mean Income to median Income," Queen's Economics Department Working Papers 273438, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273438
    DOI: 10.22004/ag.econ.273438
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    References listed on IDEAS

    as
    1. Usher, Dan, 2006. "Should the Samuelson Rule Be Modified to Account for the Marginal Cost of Public Funds?," Queen's Economics Department Working Papers 273541, Queen's University - Department of Economics.
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    10. Browning, Edgar K. & Liu, Liqun, 1998. "The Optimal Supply of Public Goods and the Distortionary Cost of Taxation: Comment," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(1), pages 103-116, March.
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    22. Usher, Dan, 2006. "Should the Samuelson Rule Be Modified to Account for the Marginal Cost of Public Funds?," Queen's Economics Department Working Papers 273541, Queen's University - Department of Economics.
    23. Leach,John, 2004. "A Course in Public Economics," Cambridge Books, Cambridge University Press, number 9780521828772, January.
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    Cited by:

    1. K. W Kevin Hsu & C. C. Yang, 2008. "Political Economy And The Social Marginal Cost Of Public Funds: The Case Of The Meltzer‐Richard Economy," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 401-410, July.
    2. Usher, Dan, 2014. "How High Might the Revenue-maximizing Tax Rate Be?," Queen's Economics Department Working Papers 274660, Queen's University - Department of Economics.
    3. Usher, Dan, 2014. "How High Might the Revenue-maximizing Tax Rate Be?," Queen's Economics Department Working Papers 274660, Queen's University - Department of Economics.
    4. Yeti Nisha Madhoo & Shyam Nath, 2014. "Beneficiary charges: The Cinderella of subnational finance," Chapters, in: Richard M. Bird & Jorge Martinez-Vazquez (ed.), Taxation and Development: The Weakest Link?, chapter 11, pages 364-402, Edward Elgar Publishing.
    5. Jan Hanousek & Filip Palda, 2009. "Is there a displacement deadweight loss from tax evasion? Estimates using firm surveys from the Czech Republic," Economic Change and Restructuring, Springer, vol. 42(3), pages 139-158, August.

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    • H4 - Public Economics - - Publicly Provided Goods

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