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The Marginal Cost of Public Funds: A Brief Guide

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  • Spencer Bastani

Abstract

When deciding on the social desirability of public investment, the cost of a project is sometimes adjusted by a factor known as the Marginal Cost of Public Funds (MCPF) which captures the cost of raising public funds through distortionary taxation. However, there is no scholarly consensus on either its definition or its quantification. The purpose of this paper is to provide a brief up-to-date guide to the theoretical background, practical application, and empirical quantification of the MCPF, taking into account some recent developments in the public finance literature.

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  • Spencer Bastani, 2023. "The Marginal Cost of Public Funds: A Brief Guide," CESifo Working Paper Series 10322, CESifo.
  • Handle: RePEc:ces:ceswps:_10322
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    More about this item

    Keywords

    benefit-cost analysis; public investment; excess burden; distortions; public goods; taxes;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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