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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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    1. is not listed on IDEAS
    2. 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.
    3. 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.
    4. 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.
    5. 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.

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    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods

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