Bridging the tax-expenditure gap : green taxes and the marginal cost of funds
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Date
2001-02Metadata
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- Discussion papers (SAM) [666]
Abstract
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 intuition is not necessarily true, even when
a green tax is the sole source of funds. The analysis also considers the MCF with a
proportional income tax, given the presence of green taxes. It compares the
optimization approach to the MCF with that of a balanced budget reform and shows that they lead to equivalent results.
Publisher
Norwegian School of Economics and Business Administration. Department of EconomicsSeries
Discussion paper2001:2