The recent public economics literature involves an apparent consensus that income effects reduce the costs of raising revenues and hence increase the desirable level of public good provision. Higher taxes can indeed reduce the demand for leisure - and hence increase the supply of taxed labor -...

The marginal cost of public funds is usually seen as a number greater than one, reflecting the efficiency cost of distortionary taxes. But economic intuition suggests that since green taxes are efficiency-enhancing the MCF with such taxes will be less than one. The paper demonstrates that this...