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The marginal cost of funds with nonseparable public spending

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  • Shaghil Ahmed
  • Dean Croushore

Abstract

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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Suggested Citation

  • Shaghil Ahmed & Dean Croushore, 1994. "The marginal cost of funds with nonseparable public spending," Working Papers 94-5, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:94-5
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    Cited by:

    1. 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.
    2. Warlters, Michael & Auriol, Emmanuelle, 2005. "The marginal cost of public funds in Africa," Policy Research Working Paper Series 3679, The World Bank.
    3. Mickael Beaud & Thierry Blayac & Patrice Bougette & Soufiane Khoudmi & Philippe Mahenc & Stéphane Mussard, 2013. "Estimation du coût d'opportunité des fonds publics pour l'économie française," Studies and Syntheses 14-01, LAMETA, Universtiy of Montpellier, revised Oct 2014.
    4. Can Erbil, 2004. "Trade Taxes Are Expensive," International Trade 0409002, University Library of Munich, Germany.

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    Keywords

    Expenditures; Public;

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