Download This PaperBridging the Tax-Expenditure Gap: Green Taxes and the Marginal Cost of Funds
24 Pages Posted: 30 Oct 2001
Date Written: October 2001
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.
JEL Classification: D62, H21, H41
Suggested Citation: Suggested Citation
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