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
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: Suggested Citation
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