The Marginal Cost of Public Funds

Dahlby, Bev

doi:10.7551/mitpress/9780262042505.001.0001

Cited by 178 publications

(149 citation statements)

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“…MCF s t < 1 if there is a backward-bending labor supply curve (ε u lt > 0). The result that the MCF of a distortionary tax can be smaller than one led to a large literature trying to explain this counterintuitive finding and to relate it to the marginal excess burden of the tax; see for example Triest (1990), Ballard and Fullerton (1992) and Dahlby (2008).…”

Section: Proposition 4 With the Standard Mcf Definition And With Thementioning

confidence: 99%

“…The literature on the marginal cost of public funds has generated substantial confusion, see also the reviews in Ballard and Fullerton (1992), Dahlby (2008), and Jacobs (2009). In particular, earlier literature has not settled down on a commonly agreed definition for the marginal cost of public funds.…”

Section: Introductionmentioning

confidence: 99%

“…Triest (1990), Håkonsen (1998) and Dahlby (2008) also aim to derive a relationship between the standard MCF measure and the marginal excess burden in models without distributional concerns. These contributions develop a MCF measure, which adjusts the MEB with the ratio of the shadow value of public resources in the absence of taxation (η f b , 'first-best') and after the introduction of distortionary taxation (η sb , 'second-best').…”

Section: Proposition 4 With the Standard Mcf Definition And With Thementioning

confidence: 99%

“…Only in that special case one can unambiguously conclude that the marginal cost of public funds 4 Some authors have allowed for heterogeneous agents, see, for example, the contributions by Browning and Johnson (1984) and Allgood and Snow (1998), but these studies focus mainly on the efficiency costs of taxation. Others have explicitly introduced distributional aspects of public goods and taxes, see, e.g., Christiansen (1981), Boadway and Keen (1993), Kaplow (1996), Sandmo (1998), Slemrod and Yitzhaki (2001), and Dahlby (2008).…”

Section: Introductionmentioning

confidence: 99%

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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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Section: Proposition 4 With the Standard Mcf Definition And With Thementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Proposition 4 With the Standard Mcf Definition And With Thementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

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

Jacobs

2018

Int Tax Public Finance

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“…10 The subsidy payment lowers the incentive of Hs to switch activities and therefore the extension of insurance cover to the Ls that is made possible by the tax is greater than in the case where a (tax revenue neutral) public good is provided. A given tax is less costly to Ls when the proceeds are redistributed to Hs: The marginal equivalent monetary cost to Ls of transferring an extra dollar to Hs by means of an insurance tax, denoted M CP F r t ; will now be computed.…”

Section: Redistributive Insurance Taxationmentioning

confidence: 99%

The deadweight gain of insurance taxation when risky activities are optional

Meza¹,

Xie²

2014

Journal of Public Economics

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Some risky activities are optional, for example motoring. Participation in them is most attractive for good risks, creating a tendency for advantageous selection in the associated insurance market. Taxing insurance consequently yields e¢ ciency gains when type is hidden. Results are strengthened if optimism is present. Finally, endogenising participation implies that the standard "positive correlation" test for the presence of policy relevant asymmetric information may fail.

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Using Cost–Benefit Analysis to Evaluate City Logistics Initiatives: An Application to Freight Consolidation in Small‐ and Mid‐Sized Urban Areas

Holmgren¹

2018

City Logistics 2

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The Marginal Cost of Public Funds

Cited by 178 publications

References 0 publications

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

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

The deadweight gain of insurance taxation when risky activities are optional

Using Cost–Benefit Analysis to Evaluate City Logistics Initiatives: An Application to Freight Consolidation in Small‐ and Mid‐Sized Urban Areas

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