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Cost-Benefit Analysis and the Distributional Consequences of Government Projects

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  • Yitzhaki, Shlomo

Abstract

This paper points out the similarities and differences between cost-benefit analysis and tax reform. By restricting the analysis to the margin it is shown that both areas can be handled by the same method. In both areas, there is a need to define social distributional weights and to evaluate the Marginal Efficiency Cost of Public Funds (MECF). It is suggested that the social distributional weights be derived from popular inequality indices. Such derivation enables the decomposition of the impact of the project (tax reform) on growth and redistribution so that one can evaluate the trade-off between the two.

Suggested Citation

  • Yitzhaki, Shlomo, 2003. "Cost-Benefit Analysis and the Distributional Consequences of Government Projects," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(2), pages 319-336, June.
    • Handle: RePEc:ntj:journl:v:56:y:2003:i:2:p:319-36
    DOI: 10.17310/ntj.2003.2.02
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    References listed on IDEAS

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    1. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
    2. Ravallion, M. & Datt, G., 1991. "Growth and Redistribution Components of Changes in Poverty Measures," Papers 83, World Bank - Living Standards Measurement.
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    Cited by:

    1. Glenn Jenkins & Chun-Yan Kuo & Arnold C. Harberger, 2011. "Cost-Benefit Analysis for Investment Decisions: Chapter 14 (The Shadow Price of Government Funds, Distributional Weights, and Basic Needs Externalitiess)," Development Discussion Papers 2011-14, JDI Executive Programs.
    2. Acland, Daniel J. & Greenberg, David H., 2023. "Distributional weighting and welfare/equity tradeoffs: a new approach," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 14(1), pages 68-92, March.
    3. Helen Scarborough & Jeff Bennett, 2012. "Cost–Benefit Analysis and Distributional Preferences," Books, Edward Elgar Publishing, number 14376.
    4. Shun-ichiro Bessho & Masayoshi Hayashi, 2013. "Estimating the Social Marginal Cost of Public Funds," Public Finance Review, , vol. 41(3), pages 360-385, May.
    5. Olof Johansson-Stenman, 2005. "Distributional Weights in Cost-Benefit Analysis—Should We Forget about Them?," Land Economics, University of Wisconsin Press, vol. 81(3).
    6. Matthew D. Adler, 2016. "Editor's Choice Benefit–Cost Analysis and Distributional Weights: An Overview," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(2), pages 264-285.

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