Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods
Article first published online: 9 MAR 2011
© 2011 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 13, Issue 2, pages 289–309, April 2011
How to Cite
ANDERSON, J. E. and MARTIN, W. (2011), Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods. Journal of Public Economic Theory, 13: 289–309. doi: 10.1111/j.1467-9779.2010.01500.x
- Issue published online: 9 MAR 2011
- Article first published online: 9 MAR 2011
- Received January 24, 2008; Accepted February 23, 2010.
The fact that raising taxes can increase taxed labor supply through income effects is frequently and erroneously used to justify greater public good provision than indicated by traditional, compensated analyses. We develop a model including multiple public goods and taxes and derive measures of the marginal benefits of public goods and the Marginal Cost of Funds (MCF) using both compensated and uncompensated measures. We confirm that the desirability of tax-financed public projects is independent of the method used. An important innovation is to show that the benefits of public goods must be adjusted by a benefit multiplier not previously seen in the literature if an uncompensated MCF is used.