Chris Jones
- Published in print:
- 2005
- Published Online:
- July 2005
- ISBN:
- 9780199281978
- eISBN:
- 9780191602535
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199281971.001.0001
- Subject:
- Economics and Finance, Public and Welfare
Important results in the applied welfare literature are used to extend a conventional Harberger cost-benefit analysis. A conventional welfare equation is obtained for marginal policy changes in a ...
More
Important results in the applied welfare literature are used to extend a conventional Harberger cost-benefit analysis. A conventional welfare equation is obtained for marginal policy changes in a general equilibrium economy with tax distortions. It is extended to accommodate internationally traded goods, time, income taxes, and non-tax distortions, including externalities, non-competitive behaviour, public goods, and price-quantity controls. The welfare analysis is developed in stages, and where possible is explained using diagrams, to make it more amenable to the different institutional arrangements encountered in applied work. Computable welfare expressions are solved using demand-supply elasticities. In a conventional cost-benefit analysis, lump sum transfers are used to separate the welfare effects of individual policy variables. This is important because it allows policy evaluation to be divided across specialist agencies. These transfers are carefully examined to identify the important role played by the marginal social cost of public funds (MCF) in policy evaluation when governments balance their budgets with distorting taxes. This book separates income effects for marginal policy changes in the shadow value of government revenue. As a scaling coefficient that converts efficiency effects into dollar changes in private surplus, it makes income effects irrelevant in single (aggregated) consumer economies, and conveniently isolates distributional effects in heterogeneous consumer economies. This decomposition is used to test for Pareto improvements, and to examine the separate, but related roles of the shadow value of government revenue and the MCF in applied work.Less
Important results in the applied welfare literature are used to extend a conventional Harberger cost-benefit analysis. A conventional welfare equation is obtained for marginal policy changes in a general equilibrium economy with tax distortions. It is extended to accommodate internationally traded goods, time, income taxes, and non-tax distortions, including externalities, non-competitive behaviour, public goods, and price-quantity controls. The welfare analysis is developed in stages, and where possible is explained using diagrams, to make it more amenable to the different institutional arrangements encountered in applied work. Computable welfare expressions are solved using demand-supply elasticities. In a conventional cost-benefit analysis, lump sum transfers are used to separate the welfare effects of individual policy variables. This is important because it allows policy evaluation to be divided across specialist agencies. These transfers are carefully examined to identify the important role played by the marginal social cost of public funds (MCF) in policy evaluation when governments balance their budgets with distorting taxes. This book separates income effects for marginal policy changes in the shadow value of government revenue. As a scaling coefficient that converts efficiency effects into dollar changes in private surplus, it makes income effects irrelevant in single (aggregated) consumer economies, and conveniently isolates distributional effects in heterogeneous consumer economies. This decomposition is used to test for Pareto improvements, and to examine the separate, but related roles of the shadow value of government revenue and the MCF in applied work.
Chris Jones
- Published in print:
- 2005
- Published Online:
- July 2005
- ISBN:
- 9780199281978
- eISBN:
- 9780191602535
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199281971.003.0007
- Subject:
- Economics and Finance, Public and Welfare
In public economics applications, the MCF is frequently used to compute the cost to private surplus of raising an additional dollar of government revenue. One of the most common examples is provided ...
More
In public economics applications, the MCF is frequently used to compute the cost to private surplus of raising an additional dollar of government revenue. One of the most common examples is provided by the revision to the Samuelson condition that follows the approach recommended by Pigou (1947). The MCF is rarely used in the applied welfare literature to compute shadow prices. By doing so in this chapter, it is possible to demonstrate the separate, but related roles of the MCF and the shadow value of government revenue. While the MCF is the cost to private surplus of transferring a dollar of revenue to balance the government budget, the shadow value of government revenue is the change in social welfare from endowing another dollar of revenue on the government. Thus, the MCF is the welfare effect of transferring given resources between the private and public sectors of the economy, while the shadow value of government revenue is the welfare effect of expanding the economies’ resources. That is why the shadow value of government revenue, and not the MCF, converts efficiency gains into utility. The relationship between the MCF and the shadow value of government revenue is used to reconcile different measures of the MCF used in the public economics literature.Less
In public economics applications, the MCF is frequently used to compute the cost to private surplus of raising an additional dollar of government revenue. One of the most common examples is provided by the revision to the Samuelson condition that follows the approach recommended by Pigou (1947). The MCF is rarely used in the applied welfare literature to compute shadow prices. By doing so in this chapter, it is possible to demonstrate the separate, but related roles of the MCF and the shadow value of government revenue. While the MCF is the cost to private surplus of transferring a dollar of revenue to balance the government budget, the shadow value of government revenue is the change in social welfare from endowing another dollar of revenue on the government. Thus, the MCF is the welfare effect of transferring given resources between the private and public sectors of the economy, while the shadow value of government revenue is the welfare effect of expanding the economies’ resources. That is why the shadow value of government revenue, and not the MCF, converts efficiency gains into utility. The relationship between the MCF and the shadow value of government revenue is used to reconcile different measures of the MCF used in the public economics literature.
Chris Jones
- Published in print:
- 2005
- Published Online:
- July 2005
- ISBN:
- 9780199281978
- eISBN:
- 9780191602535
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199281971.003.0010
- Subject:
- Economics and Finance, Public and Welfare
Government provision of a pure public good is a popular application in public economics because it combines public spending and taxation in a single project. This chapter uses shadow pricing rules ...
More
Government provision of a pure public good is a popular application in public economics because it combines public spending and taxation in a single project. This chapter uses shadow pricing rules developed in previous chapters to obtain the Samuelson (1954) condition for the optimal provision of pure public goods. The effects of distorting taxation are included by using the revised shadow prices in Ch. 6 to obtain a revised Samuelson condition, and the distributional effects are included using welfare analysis in Ch. 7. The generalized Hatta decomposition is used to show why income effects do not impact on the Samuelson condition in a single (aggregated) consumer economy. Finally, Lindahl prices are obtained for government-provided public goods when prices and incomes change endogenously in a general equilibrium setting.Less
Government provision of a pure public good is a popular application in public economics because it combines public spending and taxation in a single project. This chapter uses shadow pricing rules developed in previous chapters to obtain the Samuelson (1954) condition for the optimal provision of pure public goods. The effects of distorting taxation are included by using the revised shadow prices in Ch. 6 to obtain a revised Samuelson condition, and the distributional effects are included using welfare analysis in Ch. 7. The generalized Hatta decomposition is used to show why income effects do not impact on the Samuelson condition in a single (aggregated) consumer economy. Finally, Lindahl prices are obtained for government-provided public goods when prices and incomes change endogenously in a general equilibrium setting.
Chris Jones
- Published in print:
- 2005
- Published Online:
- July 2005
- ISBN:
- 9780199281978
- eISBN:
- 9780191602535
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199281971.003.0011
- Subject:
- Economics and Finance, Public and Welfare
This chapter provides a set of questions drawn from material presented in previous chapters. Most are designed to emphasize important points, and to illustrate practical examples of applied welfare ...
More
This chapter provides a set of questions drawn from material presented in previous chapters. Most are designed to emphasize important points, and to illustrate practical examples of applied welfare analysis. A number of questions are quite long and are intended as assignments, while others are more suitable for tutorial exercises.Less
This chapter provides a set of questions drawn from material presented in previous chapters. Most are designed to emphasize important points, and to illustrate practical examples of applied welfare analysis. A number of questions are quite long and are intended as assignments, while others are more suitable for tutorial exercises.
