Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods

Anderson, James E.; Martin, Will

Costs of Taxation and Benefits of Public Goods with Multiple Taxes and Goods

Autores

Descripción

The recent public economics literature involves an apparent consensus that income effects reduce the costs of raising revenues and hence increase the desirable level of public good provision. Higher taxes can indeed reduce the demand for leisure -- and hence increase the supply of taxed labor -- through income effects. However, the consensus is wrong because the income effects of taxes must be considered symmetrically with those from provision of public goods. This paper uses a model with multiple public goods and taxes to derive consistent measures of the marginal benefits of publicly-provided goods and their marginal social costs. With this model, the authors show that either compensated approaches excluding these income effects or uncompensated approaches including them may be used. If an uncompensated measure of the marginal cost of funds is used, however, the benefits of providing public goods should be adjusted with a simple, benefit multiplier not previously seen in the literature. Once this is done, the optimal level of public provision is independent of whether compensated or uncompensated approaches are used. Proper accounting for these income effects -- or their omission using a compensated approach -- appears to substantially raise the hurdle for government provision where there are substantial taxes bearing on labor.

Palabras clave

ACCOUNTING, AGRICULTURE, BENCHMARK, BUDGET CONSTRAINT, BUDGET CONSTRAINTS, COMMODITIES, COMMODITY, COMPETITIVE MARKET, CONSUMER DEMAND, CONSUMER DEMANDS, CONSUMERS, COST OF FUNDS, DECISION MAKING, DERIVATIVE, DERIVATIVES, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DIFFERENTIAL TAXATION, DISPOSABLE INCOMES, ECONOMIC EFFICIENCY, ECONOMIC PERFORMANCE, ECONOMIC RESEARCH, ECONOMIC THEORY, ECONOMICS, ECONOMICS LITERATURE, ELASTICITY, EQUALIZATION, EQUATIONS, EXCISE TAXES, EXCLUSION, FISCAL BALANCE, FISCAL POLICIES, FISCAL POLICY, GDP, GOVERNMENT BUDGET, GOVERNMENT DEFICIT, GOVERNMENT EXPENDITURE, GOVERNMENT EXPENDITURES, GOVERNMENT POLICY, GOVERNMENT REVENUE, GOVERNMENT REVENUES, GOVERNMENT SPENDING, GROSS DOMESTIC PRODUCT, HOLDING, INCOME, INCOME EFFECT, INCOME TAX, INCOME TAXES, INEFFICIENCY, INTERNATIONAL BANK, INTERNATIONAL TRADE, MARGINAL BENEFITS, MARGINAL COST, MARGINAL COSTS, MARGINAL PRODUCTIVITY, MARGINAL TAX RATES, MARGINAL VALUE, MARKET ENVIRONMENT, MARKET PRICES, MATHEMATICAL LOGIC, NATIONAL BUDGET, NATIONAL INCOME, NORMAL GOOD, OPEN ECONOMY, OPTIMAL TAXATION, OUTPUT, OUTPUTS, POLITICAL ECONOMY, PRICE CHANGES, PRIVATE GOODS, PRIVATE SECTOR, PRODUCTION EFFICIENCY, PRODUCTION STRUCTURE, PROGRESSIVE TAXATION, PROGRESSIVE TAXES, PUBLIC, PUBLIC ECONOMICS, PUBLIC EXPENDITURE, PUBLIC FINANCE, PUBLIC FUNDS, PUBLIC GOOD, PUBLIC GOODS, PUBLIC POLICY, PUBLIC SECTOR, PUBLIC SPENDING, RATE OF RETURN, REAL INCOME, RETURNS, ROADS, SHADOW PRICES, SINGLE TAX, SMALL ECONOMY, SOCIAL COST, SOCIAL COSTS, SOCIAL MARGINAL COST, TAX, TAX AVOIDANCE, TAX BASE, TAX BASES, TAX CHANGES, TAX MEASURES, TAX POLICY, TAX RATE, TAX RATES, TAX REFORM, TAX REFORMS, TAX REVENUE, TAX REVENUES, TAXABLE INCOME, TAXATION, TAXPAYERS, USER CHARGES, VALUATION, VALUATIONS, WELFARE ECONOMICS