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The marginal cost of funds with nonseparable public spending


  • Shaghil Ahmed
  • Dean Croushore


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.
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  • Shaghil Ahmed & Dean Croushore, 1992. "The marginal cost of funds with nonseparable public spending," Working Papers 92-2, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:92-2

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    References listed on IDEAS

    1. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
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    Cited by:

    1. Auriol, Emmanuelle & Warlters, Michael, 2006. "The Marginal Cost of Public Funds in Developing Countries: An Application to 38 African Countries," CEPR Discussion Papers 6007, C.E.P.R. Discussion Papers.
    2. Auriol, Emmanuelle & Warlters, Michael, 2012. "The marginal cost of public funds and tax reform in Africa," Journal of Development Economics, Elsevier, vol. 97(1), pages 58-72.
    3. Mickaël Beaud & Thierry Blayac & Patrice Bougette & Soufiane Khoudmi & Philippe Mahenc & Stéphane Mussard, 2013. "Estimation du coût d'opportunité des fonds publics pour l'économie française," Working Papers halshs-01077141, HAL.
    4. Kaplow, Louis, 2006. "Public goods and the distribution of income," European Economic Review, Elsevier, vol. 50(7), pages 1627-1660, October.
    5. Strand, Jon, 2009. ""Revenue management"effects related to financial flows generated by climate policy," Policy Research Working Paper Series 5053, The World Bank.
    6. Warlters, Michael & Auriol, Emmanuelle, 2005. "The marginal cost of public funds in Africa," Policy Research Working Paper Series 3679, The World Bank.
    7. José Manuel González Páramo, 2003. "Midiendo el coste marginal en bienestar de una reforma impositiva," Hacienda Pública Española, IEF, vol. 166(3), pages 115-147, September.
    8. 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.
    9. 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.
    10. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, EconWPA.
    11. ERBIL Can, "undated". "Trade Taxes Are Better ?!? Short Answer: No," EcoMod2003 330700048, EcoMod.
    12. 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.
    13. Devarajan, Shantayanan & Robinson, Sherman, 2002. "The influence of computable general equilibrium models on policy," TMD discussion papers 98, International Food Policy Research Institute (IFPRI).
    14. 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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    Expenditures; Public ; Debts; Public;


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