Premium
The Cost of Public Funds in Australia*
Author(s) -
CAMPBELL H.F.,
BOND K.A.
Publication year - 1997
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1997.tb00976.x
Subject(s) - decile , economics , marginal cost , revenue , labour supply , public fund , labour economics , tax revenue , deadweight loss , public expenditure , marginal utility , public economics , public finance , microeconomics , finance , macroeconomics , welfare , statistics , market economy , mathematics
A model of labour supply is used to calculate Australia's marginal cost of public funds, which is the appropriate cut‐off benefit/ cost ratio for an additional public project. The labour supply model incorporates effective average and marginal tax rates faced by the representative household in each gross income decile. These rates are estimated from the ABS 1988–89 Household Expenditure Survey. A simulation analysis is performed to calculate the effect on labour supply of a 1 per cent increase in marginal tax rates. The estimated changes in tax revenues and deadweight loss in each decile are used to estimate the marginal cost of public funds.