This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Add to Saved Citations Download to citation manager Request Permissions Request Reprints Add to My Marked Citations Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Citing Articles via Scopus Google Scholar Articles by Usher, D. Search for Related Content Social Bookmarking                         What's this?

The Marginal Cost of Public Funds Is the Ratio of Mean Income to Median Income

Queen's University

This article is a proof and critique of the theorem in its title. The marginal cost of public funds is the relative price of dollars in the hands of the government, with dollars in the hands of the public as the numeraire. It is the appropriate mark-up of benefit over cost for public sector projects and programs. With no deadweight loss in taxation, the marginal cost of public funds would have to be one. It exceeds one to account for the deadweight loss from taxpayers'maneuvers to reduce the tax they pay: tax evasion, substitution of leisure for labor, and so on. It is the ratio of mean to median income when public expenditure and taxation are arranged in the interest of the median voter.

Key Words: marginal cost of public funds • median voter • shadow price • lump sum taxation

Public Finance Review, Vol. 34, No. 6, 687-711 (2006)
DOI: 10.1177/1091142106289173


CiteULike    Complore    Connotea    Del.icio.us    Digg    Reddit    Technorati    Twitter    What's this?

This article has been cited by other articles:

				J. Alm, J. Deskins, and M. McKee Do Individuals Comply on Income Not Reported by Their Employer? Public Finance Review, March 1, 2009; 37(2): 120 - 141. [Abstract] [PDF]