Recent estimates of the marginal cost of public funds differ substantially. Some studies argue that the efficiency cost of taxation counter the welfare gain connected to redistribution of income. Hence, the efficiency cost of taxation should not be included as a cost of public goods provision....

This chapter analyzes the distortions created by taxation and the features of tax systems that minimize such distortions (subject to achieving other government objectives). It starts with a review of the theory and practice of deadweight loss measurement, followed by characterizations of optimal...

This paper introduces an index of tax optimality that measures the distance of a current tax structure from the optimal tax structure in the presence of public goods. In doing so, we derive a [0, 1] number that reveals immediately how far the current tax configuration is from the optimal one...

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...

Almost all theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising since most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the...

Almost all theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising since most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the...

Almost all theoretical work on how to calculate the marginal deadweight loss has been done for linear taxes and for variations in linear budget constraints. This is quite surprising since most income tax systems are nonlinear, generating nonlinear budget constraints. Instead of developing the...

This paper studies the Marginal Cost of Funds (MCF) in the existence of tax evasion. When tax evasion is incorporated as a behavioral response to tax rate change, the MCF can be different than the previously estimated ones in the literature. We develop a general equilibrium model of tax evasion,...

This paper introduces an index of tax optimality that measures the distance of a current tax structure from the optimal tax structure in the presence of public goods. In doing so, we derive a [0,1] number that reveals immediately how far the current tax configuration is from the optimal one and,...

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...