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Comments on "The Optimal Supply of Public Goods and the Distortionary Cost of Taxation"

Author

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  • Dan Usher

    () (Department of Economics, Queen's University)

Abstract

An ideal planner would follow the original Samuelson rule: to undertake each and every public project, program or activity up to the point where the sum of its marginal benefits is just equal to its marginal cost. Actual governments modify the rule in response to the marginal cost of public funds and the shadow price of public expenditure. The first of these modifications is an additional cost of public revenue, over and above the tax people actually pay, when people rearrange their affairs to minimize their tax bills. The second is the effect - sometimes positive and sometimes negative - of the provision of the public project, program or activity on total tax revenue. Kaplow can be interpreted as arguing that these modifications cancel out, leaving the original Samuelson rule in tact. He turns out to be right for public provision of intermediate goods that augment output but do not themselves enter as arguments in the utility function. Otherwise he is mistaken.

Suggested Citation

  • Dan Usher, 2004. "Comments on "The Optimal Supply of Public Goods and the Distortionary Cost of Taxation"," Working Papers 1020, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1020
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1020.pdf
    File Function: First version 2004
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    Cited by:

    1. Hultkrantz, Lars & Svensson, Mikael, 2012. "A Comparison of Benefit Cost and Cost Utility Analysis in Practice: Divergent Policies in Sweden," Karlstad University Working Papers in Economics 1, Karlstad University, Department of Economics.

    More about this item

    Keywords

    Public Goodes; Deadweight Loss;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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