The Marginal Cost of Public Funds under Information Constrained Taxation sufficiently large

Vidar Christiansen

FinanzArchiv: Public Finance Analysis, 1999, vol. 56, issue 2, 188-

Abstract: The analysis of the marginal cost of public funds is extended to the simple two-type, income tax model where individual skill is private information. The marginal cost is related to the prevailing distortions and properties of individual preferences. A division of a tax increase is identified such that there is no marginal excess burden. It is also shown that there will be a positive marginal excess burden only if the high-skilled person bears a sufficiently large share (strictly above 50 percent) of the additional tax burden.

Date: 1999
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