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Cost-benefit analysis and the marginal cost of public funds

Author

Listed:
  • Nigar HASHIMZADE
  • Gareth MYLES

Abstract

The marginal cost of public funds (MCF) measures the cost to the economy of raising government revenue. The MCF can be used to guide reform of the tax system and to determine an efficient level of government expenditure. It can also be used as an input into cost-benefit analysis. Previous applications of the concept have developed a methodology appropriate to single countries. The application of the MCF within the EU context raises several important questions concerning tax and expenditure externalities between member states of an economic union. We extend the concept of the MCF to a setting that combines growth with fiscal federalism. It is intended that this represents a setting in which several issues relevant to the EU can be addressed.

Suggested Citation

  • Nigar HASHIMZADE & Gareth MYLES, 2009. "Cost-benefit analysis and the marginal cost of public funds," Departmental Working Papers 2009-029, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2009-029
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    More about this item

    Keywords

    Growth; infrastructure; externalities; public funds;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H4 - Public Economics - - Publicly Provided Goods
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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