 On the Importance of the Tax System in Marginal Cost of Funds CalculationsThe B.E. Journal of Economic Analysis & Policy, 2011, vol. 11, issue 1, 13 Abstract: Several papers have attempted to derive computable analytical formulas for the Marginal Cost of Funds (MCF). However, this literature is often cast in the pure labor supply general equilibrium model, which is not completely consistent with real tax systems where Labor Income Taxation (LIT) is not the only instrument used by governments. Hence, we explicitly introduce Value-Added Taxation (VAT) on consumption goods in the conventional model, and we derive an analytical formula for the MCF which does incorporate general equilibrium interactions between the different tax bases. Then, we illustrate how much this matter for empirical estimates of MCF using French data. Our numerical example suggests that, when computing MCF for a LIT reform, taking account of the impact of LIT reform on tax revenue from VAT can make a great deal of difference, typically increasing MCF and accounting for around 0.2 to 0.8 of estimates. In addition, MCF is then really less likely to be less than one than in the conventional framework. Keywords: cost-benefit analysis; public sector efficiency; cost of funds; deadweight loss (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejeap:v:11:y:2011:i:1:n:4 Ordering information: This journal article can be ordered from Access Statistics for this article The B.E. Journal of Economic Analysis & Policy is currently edited by Hendrik Jürges and Sandra Ludwig More articles in The B.E. Journal of Economic Analysis & Policy from De Gruyter |
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