Discussion Papers no. 908
The costs of taxation in the presence of inequality
This paper provides a new and improved measure of the marginal cost of public funds (MCF). It is based on a benchmark tax which is distributionally neutral and non-distortive.
This is in contrast to the MCF-measure used in the previous literature, that has used the regressive uniform lump-sum tax as the benchmark. Our proposed MCF-measure more precisely accounts for the distributional aspects of public funding (the tax scheme) and makes a clear distinction between this and the distributional aspects of the public good considered. Compared to the previous literature, we find a higher MCF both in the case of a uniform lump-sum tax and in the case of distortive taxes. Due to its regressive distributional consequences, we find that the MCF of a uniform lump-sum tax is always greater than one when not combined with distortive taxes. Moreover, we find that the MCF could be greater than one also with an optimal combination of a uniform lump-sum tax and distortive taxes.
About the publication
- Title
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The costs of taxation in the presence of inequality
- Author
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Åsmund Sunde Valseth, Bjart Holtsmark, Katinka Holtsmark
- Series and number
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Discussion Papers no. 908
- Publisher
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Statistisk sentralbyrå
- Topic
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Discussion Papers
- ISSN
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1892-753X
- About Discussion Papers
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Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.
Contact
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Statistics Norway's Information Centre