Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2010:5: A note on CostBenefit Analysis, the Marginal Cost of Public Funds, and the Marginal Excess Burden of Taxes

Per-Olov Johansson () and Bengt Kriström ()
Additional contact information
Per-Olov Johansson: Stockholm School of Economics and CERE
Bengt Kriström: CERE, Postal: SLU-Umeå and Umeå University

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-codes: H21; H41; H43; Q51

15 pages, March 30, 2010

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