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 r...

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Bibliographic Details
Main Authors:	Martin, Will, Anderson, James E.
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	AGGREGATE SUPPLY BENCHMARK BUDGET CONSTRAINTS COMPETITIVE MARKET CONSUMER DEMAND CONSUMERS DEVELOPING COUNTRIES DISTORTIONARY TAXES ECONOMIC RESEARCH ECONOMIC REVIEW ECONOMIC STUDIES ECONOMISTS ELASTICITIES ELASTICITY ELASTICITY OF SUPPLY EMPIRICAL EVIDENCE EQUATIONS EXPENDITURES FISCAL BALANCE FISCAL COST FISCAL COSTS FISCAL POLICY FOREIGN EXCHANGE GDP GOVERNMENT SPENDING GROSS DOMESTIC PRODUCT HOUSEHOLD INCOME INCOME INCOME EFFECT INCOME EFFECTS INCOME ELASTICITY INCOME GENERATION INCOME GROUPS INCOME TAXATION INCOME TAXES INEFFICIENCY INTERMEDIATE GOODS INTERMEDIATE INPUTS INTERNATIONAL TRADE LEISURE LOW INCOME MARGINAL BENEFITS MARGINAL COST MARGINAL COSTS MARGINAL VALUE MARGINAL WELFARE COSTS MARKET PRICES NET IMPACT NUMERAIRE OUTPUT OUTPUTS POLICY ANALYSIS POLICY DECISIONS POLICY IMPLICATIONS POLICY MAKERS POLICY REFORM POLICY RESEARCH POLITICAL ECONOMY PRICE CHANGES PRIVATE GOODS PRIVATE SECTOR PRODUCERS PRODUCTIVITY PUBLIC ECONOMICS PUBLIC FUNDS PUBLIC GOOD PUBLIC GOODS PUBLIC SPENDING QUOTAS REAL INCOME ROADS SENSITIVITY ANALYSIS SOCIAL COSTS SOCIAL MARGINAL COST TAX TAX INCENTIVES TAX RATES TAX REFORM TAX REFORMS TAX REVENUE TAX REVENUES TAXABLE INCOME TAXATION USER CHARGES VALUATION WAGES WELFARE EFFECTS WILLINGNESS TO PAY
Online Access:	http://documents.worldbank.org/curated/en/2005/09/6259320/costs-taxation-benefits-public-goods-role-income-effects http://hdl.handle.net/10986/8592

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Summary:	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.

Costs of Taxation and the Benefits of Public Goods : The Role of Income Effects

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