TY  - JOUR
AU  - Slemrod,Joel
AU  - Yitzhaki,Shlomo
TI  - Integrating Expenditure and Tax Decisions: The Marginal Cost of Funds and the Marginal Benefit of Projects
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8196
PY  - 2001
Y2  - March 2001
UR  - http://www.nber.org/papers/w8196
L1  - http://www.nber.org/papers/w8196.pdf
N1  - Author contact info:
Joel Slemrod
University of Michigan Business School
701 Tappan Street
Room R5396
Ann Arbor, MI  48109-1234
Tel: 734/936-3914
Fax: 734-615-4323
E-Mail: jslemrod@umich.edu

Shlomo Yitzhaki
Department of Economics
Hebrew University
Mount Scopus
Jerusalem 91905
ISRAEL
Tel: 972-2-659-2201
Fax: 972-2-652-2319
E-Mail: shlomo.yitzhaki@huji.ac.il
AB  - This paper seeks to clarify the extent to which the rule for providing public goods ought to correct for the distortionary cost of raising funds.  We argue that, in evaluating public projects, the marginal cost of funds (MCF) concept must be supplemented by a symmetrical concept, which we label the marginal benefit of public projects, or MBP, which indicates the value to individuals of the dollars spent. Each of these concepts can be decomposed into two separate components, one reflecting efficiency and the other characterizing the distributional impact of the project itself or its financing.  We conclude that efficiency of the financing cannot be ignored, that distributional considerations are also relevant, and that the availability and optimality of tax instruments is critical for evaluating the appropriateness of proceeding with a public good-cum financing project. However, one can construct special cases, as in Kaplow (1996), where the simple cost-benefit criterion applies.
ER  -