The Welfare Analysis of Fiscal Policy: A Simple Unified Account

James Anderson and Will Martin

No 316., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: A simple general equilibrium model of an economy with distortionary taxes and public goods is used to extend, unify and clean up the welfare analysis of changes in taxation, redistribution and the provision of public goods. We clarify the distinction between compensation and money metric measures of the welfare impact of fiscal changes and show that the equivalent variation measure dominates other measures. We provide an integrated approach to marginal tax and public good changes when public goods have real resource costs and must be financed by distortionary taxation using the concepts of the marginal cost of funds, the fiscal price of public goods and the virtual price of public goods. Here too, the compensation version of these concepts dominates the money metric version.

Keywords: Marginal cost of funds; fiscal price; virtual price; duality (search for similar items in EconPapers)
JEL-codes: H21 H40 (search for similar items in EconPapers)
Pages: 33 pages
Date: 1996-01-01
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:316

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