Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210969 
Year of Publication: 
2019
Series/Report no.: 
Discussion Papers No. 908
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
This paper provides a new and improved measure of the marginal cost of public funds (MCF). It is based on a benchmark tax which is distributionally neutral and non-distortive. This is in contrast to the MCF-measure used in the previous literature, that has used the regressive uniform lump-sum tax as the benchmark. Our proposed MCF-measure more precisely accounts for the distributional aspects of public funding (the tax scheme) and makes a clear distinction between this and the distributional aspects of the public good considered. Compared to the previous literature, we find a higher MCF both in the case of a uniform lump-sum tax and in the case of distortive taxes. Due to its regressive distributional consequences, we find that the MCF of a uniform lump-sum tax is always greater than one when not combined with distortive taxes. Moreover, we find that the MCF could be greater than one also with an optimal combination of a uniform lump-sum tax and distortive taxes.
Subjects: 
Marginal cost of public funds
lump-sum taxes
public goods
JEL: 
H20
H40
H50
Document Type: 
Working Paper

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