Progressive taxation and the social marginal cost of public funds

Dahlby, Bev

doi:10.1016/s0047-2727(97)00049-2

Cited by 77 publications

(80 citation statements)

References 11 publications

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“…The MCF, on the other hand, describes this same tax benefit system by considering one of many different possible marginal changes in the system. In this sense our exercise is fundamentally different from other papers, starting with Browning and Johnson (1984) and later expanded by, among others, Mayshar (1990) and Dahlby (1998), who explicitly quantify the trade-off at the margin. They do this by changing one specific element of the tax system, which can be identified as marginally changing the progressivity characteristics of the tax system (the demogrant in the case of Browning and Johnson (1984), one of the tax rates in a piece-wise linear system in the case of Dahlby (1998)) and then calculating the MCF.…”

Section: Introductionmentioning

confidence: 89%

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A Bird's Eye View on 20 Years of Tax-Benefit Reforms in Belgium

Decoster¹,

Perelman

Vandelannoote

et al. 2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractBelgium has seen major changes in its tax-benefit system over the past twenty years. These changes have, to a large extent, co-determined the evolution of disposable incomes of Belgian households on one hand, and their incentives to work on the other. In this paper we assess equity and efficiency aspects of changes in tax-benefit policies over the full course of 1992-2012. By simulating effects of current and past tax-benefit policies using the microsimulation model MEFISTO-EUROMOD, we summarize the shifts in policy orientation over this period using two summary measures of redistribution and work incentives. Our three main findings are: 1) the changes in the tax-benefit system have to a large extent been pro-poor, and redistribution has been increased; 2) the introduction of an earned income tax credit and the lowering of personal income taxes has contributed to improve work incentives, but this effect was partially eroded by an increase in unemployment benefits since 2000; 3) the results crucially depend on whether one chooses as 'no policy change' counterfactual indexation with inflation or indexation with nominal wage growth.JEL: C81, H21, H41, J20

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Section: Introductionmentioning

confidence: 89%

“…Browning, 1976). Hansson and Stuart (1985) and Dahlby (1998), among others, extended the concept to marginal changes in progressive, piece-wise linear tax systems. Finally, Kleven & Kreiner (2006) also brought the extensive margin of labour supply on board when estimating the MCF.…”

Section: Introductionmentioning

confidence: 99%

A Bird's Eye View on 20 Years of Tax-Benefit Reforms in Belgium

Decoster¹,

Perelman

Vandelannoote

et al. 2015

SSRN Journal

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“…By using the latter approach to the marginal cost of funds, Sandmo (1998) and Slemrod and Yitzhaki (2001) include distributional aspects of distortionary linear taxation, while Gahvari (2006) extends it to nonlinear taxation. Using models with representative agents, Triest (1990), Håkonsen (1998), andDahlby (1998) develop yet another MCF concept relying on correcting the standard MCF measures with a ratio of the shadow value of public resources before and after the introduction of distortionary taxes. Up to this date, it remains unclear which MCF measure should be used in applied policy analysis.…”

Section: Introductionmentioning

confidence: 99%

The marginal cost of public funds is one at the optimal tax system

Jacobs

2018

Int Tax Public Finance

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This paper develops a Mirrlees framework with skill and preference heterogeneity to analyze optimal linear and nonlinear redistributive taxes, optimal provision of public goods, and the marginal cost of public funds (MCF). It is shown that the MCF equals one at the optimal tax system, for both lump-sum and distortionary taxes, for linear and nonlinear taxes, and for both income and consumption taxes. By allowing for redistributional concerns, the marginal excess burden of distortionary taxes is shown to be equal to the marginal distributional gain at the optimal tax system. Consequently, the modified Samuelson rule should not be corrected for the marginal cost of public funds. Outside the optimum, the marginal cost of public funds for distortionary taxes can be either smaller or larger than one. The findings of this paper have potentially important implications for applied tax policy and social cost-benefit analysis. Keywords

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“…Note that, given the linear speci…cation of (12), these values of course vary among observations. Table 5 5.2 The marginal cost of public funds…”

Section: Datamentioning

confidence: 99%

“…We note however that our estimates of the elasticities for the prime-age males are rather large, when compared to analogous studies in North America and Europe. 15 The linear speci…cation of (12) restricts the values of elasticities a priori. That is, to the extent that w=h (w) is larger, the compensated elasticities (income e¤ect) will be more positive (negative).…”

Section: Datamentioning

confidence: 99%