Cost-benefit analysis and the marginal cost of public funds
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.
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