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The Marginal Cost of Public FundsTheory and Applications$
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Bev Dahlby

Print publication date: 2008

Print ISBN-13: 9780262042505

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262042505.001.0001

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The MCF for Commodity Taxes

The MCF for Commodity Taxes

(p.51) 3 The MCF for Commodity Taxes
The Marginal Cost of Public Funds

Bev Dahlby

The MIT Press

This chapter develops a framework for calculating the marginal cost of public funds (MCF) for commodity taxes. It extends the model developed in Chapter 2 by measuring the MCF when there are other distortions in the economy. These distortions include taxes on other commodities, positive and negative externalities in the production and consumption of commodities, imperfect competition, smuggling and tax evasion, and addiction. Thus, a major theme of the chapter is how market distortions can be incorporated in the measurement of the MCF. The final section summarizes studies of the marginal distortionary costs of commodity taxes. These studies are divided into those that focus on the MCFs for taxes on specific commodities, those that calculate the MCFs for general sales taxes, and those that calculate the MCFs for taxes on imports and exports.

Keywords:   marginal cost of public funds, taxation, market distortions, marginal distortionary costs

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