The Cost of Public Funds in Australia*

Abstract

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.

Should We Pay for Ecosystem Service Outputs, Inputs or Both?

“…The term t  is the discount factor for period t and accounts for the cost of raising tax revenue due to the deadweight loss of taxation (Campbell and Bond, 1997).…”

Social cost-benefit analysis in Australia and New Zealand: The state of current practice and what needs to be done

“…It is worth noting that this analysis by Campbell and Bond (1997) drew upon data from 1988-89, and also from the findings of an earlier study by Apps and Savage (1989). This earlier study provided the parameters for labour supply elasticities from which the welfare loss from higher tax rates were calculated by Campbell and Bond.…”

“…work provides a summary of the analysis in Campbell and Bond (1997), which found METB to range from 19-24 per cent. Their methodology was to construct a representative agent model for each of the 10 gross income deciles and then to simulate for each group the labour supply effects of a 1 per cent increase in marginal income tax rates.…”

“…Given these detailed assumptions for the estimates in Campbell and Bond (1997) it seems inappropriate that the Commonwealth Treasury should uncritically adopt an METB of 25 per cent, well over a decade from the data upon which Campbell and Bond base their analysis. Moreover, studies for Australia have shown a general decline in the METB over time, as income tax rates fall.…”

An economic analysis of payment for health care services: The United States and Switzerland compared

“…The first is κ, the rate of inefficiency associated with raising revenue. In the case of tax finance (for a national health service), κ is around 0.25; that is, an efficiency loss of 25 cents accompanies every additional dollar raised (Ballard et al 1985;Campbell and Bond 1997). In the case of health insurance, κ corresponds to the loading (that is, the charges in excess of the expected value of benefits paid) for administrative expense, user cost of capital invested, and accumulation of reserves.…”