Redistribution and the Marginal Cost of Public Funds

Agnar Sandmo

No 142, CESifo Working Paper Series from CESifo

Abstract: Discussions of the marginal cost of public funds with distortionary taxation are often cast in the framework of a one-consumer economy, while the main justification of distortionary taxes is that they are needed for redistribution. This paper analyzes the issue in a model with heterogeneous consumers and a linear income tax, focusing on the tradeoff between labour market distortions and the redistribution from high-wage to low-wage workers. In an optimal tax system the MCF will be the same for all sources of funds and under certain assumptions less than one. Without optimality the MCF will in general differ between different sources of finance.

JEL-codes: D61 H21 H41 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Redistribution and the marginal cost of public funds (1998)
Working Paper: Redistribution and the marginal Cost of Public Funds (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_142

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