We develop a perfect foresight, overlapping generations model with intragenerational inequality and endogenous human and physical capital investment, and we calculate welfare costs for marginal reforms of taxation and public spending. Welfare costs are uniformly lower than in the equivalent...

We present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump-sum transfers. The formulas are applied to explain the wide...