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Costs of taxation and the benefits of public goods : the role of income effects

The fact that raising taxes can increase taxed labor supply through income effects is frequently used to justify much lower measures of the marginal welfare cost of taxes and greater public good provision than indicated by traditional, compensated analyses. The authors confirm that this difference remains substantial with newer elasticity estimates, but show that either compensated or uncompensated measures of the marginal cost of funds can be used to evaluate the costs of taxation-and will provide the same result-as long as the income effects of both taxes and public good provision are incorporated in a consistent manner.

Link http://www-wds.worldbank.…64258546&theSitePK=523679
Author Martin, W. Anderson, James E.
Date 01-Sep-2005
Institute World Bank
Tags taxation, income, welfare

See also

  1. Proposals for Further Improvement of the System of Presumptive Income Taxation of Individual Entrepreneurs in Belarus
  2. Demand for money and monetization in the economy of countries going through transformation process.
  3. Who bears the cost of Russia's military draft?
  4. Regional impacts of Russia's accession to the World Trade Organization
  5. Alternative paths to structural adjustment in Uzbekistan in a three-gap framework

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