Conventional Cost-Benefit Analysis with Distorting Taxes and the Revised Samuelson Condition
When projects are evaluated using a conventional Harberger (1971) cost-benefit analysis the welfare effects are separated with lump-sum transfers. But this does not appear possible when governments raise revenue with distorting taxes. Evidence to support this view can be found in Mayshar (1990) and Wildasin (1984) who derive a marginal social cost of public funds (MCF) that depends on how the government spends the extra revenue raised. Ballard and Fullerton (1992) use this MCF in place of the...[Show more]
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