The marginal cost of public funds: A brief guide

Spencer Bastani

No 2023:14, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: When deciding on the social desirability of public investment, the cost of a project is sometimes adjusted by a factor known as the Marginal Cost of Public Funds (MCP F ), which captures the cost of raising public funds through distortionary taxation. However, there is no scholarly consensus on its definition or quantification. The purpose of this paper is to provide a brief up-to-date guide to the theoretical background, practical application, and empirical quantification of the MCP F, taking into account some recent developments in the public finance literature, and highlighting the broad applicability of the MCP F beyond taxation.

Keywords: benefit-cost analysis; marginal value of public funds; excess burden; distortions; public goods; taxes (search for similar items in EconPapers)
JEL-codes: D61 H21 H41 H53 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2023-05-23
New Economics Papers: this item is included in nep-pbe and nep-pub
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Working Paper: The Marginal Cost of Public Funds: A Brief Guide (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ifauwp:2023_014

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