Integrating expenditure and tax decisions: the marginal cost of funds and the marginal benefit of projects.(public finance): An article from: National Tax Journal

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From the author: This paper seeks to clarify the extent to which the rule for providing public goods ought to correct for the distortionary cost of raising funds. We argue that, in evaluating public projects, the marginal cost of funds (MCF) concept must be supplemented by a symmetrical concept, which we label the marginal benefit of public projects, or MBP, which indicates the value to individuals of the dollars spent. Each of these concepts can be decomposed into two separate components, one reflecting efficiency and the other characterizing the distributional impact of the project itself or its financing. We conclude that efficiency of the financing cannot be ignored, that distributional considerations are also relevant, and that the availability and optimality of tax instruments is critical for evaluating the appropriateness of proceeding with a public good-cum financing project. However, one can construct special cases, as in Kaplow (1996), where the simple cost-benefit criterion applies.

Citation Details
Title: Integrating expenditure and tax decisions: the marginal cost of funds and the marginal benefit of projects.(public finance)
Author: Joel Slemrod
Publication:National Tax Journal (Refereed)
Date: June 1, 2001
Publisher: National Tax Association
Volume: 54 Issue: 2 Page: 189

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