A Note on Cost‐Benefit Analysis, the Marginal Cost of Public Funds, and the Marginal Excess Burden of Taxes

15 Pages Posted: 12 Apr 2010

See all articles by Per-Olov Johansson

Per-Olov Johansson

Stockholm School of Economics

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE)

Date Written: April 8, 2010

Abstract

In this note we discuss how to treat taxes in a cost-benefit analysis (CBA). In particular we relate the shadow price of taxes in CBA to the concepts the marginal cost of public funds MCPF) and the marginal excess burden (MEB) of taxes. In particular we demonstrate that the MCPF is equal to one plus the MEB for a marginal increase in a distortionary tax.

Keywords: Cost-benefit analysis, marginal cost of public funds, excess burden, taxation

JEL Classification: H21, H41, H43, Q51

Suggested Citation

Johansson, Per-Olov and Kriström, Bengt, A Note on Cost‐Benefit Analysis, the Marginal Cost of Public Funds, and the Marginal Excess Burden of Taxes (April 8, 2010). CERE Working Paper No. 2010:5, Available at SSRN: https://ssrn.com/abstract=1586270 or http://dx.doi.org/10.2139/ssrn.1586270

Per-Olov Johansson (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Stockholm
SWEDEN
+46 8 736 92 82 (Phone)
+46 8 30 21 15 (Fax)

Bengt Kriström

SLU- Centre for Environmental and Resource Economics (CERE) ( email )

Umea, 901 83
Sweden
+46-(0)90-7865219 (Phone)

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