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The Marginal Cost of Funds with Nonseparable Public Spending

  • Ahmed, S.
  • Croushore, D.

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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Paper provided by Pennsylvania State - Department of Economics in its series Papers with number 9-92-7.

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Length: 25 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:fth:pensta:9-92-7
Contact details of provider: Postal: PENNSYLVANIA STATE UNIVERSITY, DEPARTMENT OF ECONOMICS, UNIVERSITY PARK PENNSYLVANIA 16802 U.S.A.
Phone: (814)865-1456
Fax: (814)863-4775
Web page: http://econ.la.psu.edu/

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