Reports 2015/13

A discussion with special relevance to Norway

The size of the marginal cost of public funds

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This report aims to re-evaluate the recommendation of NOU 1997:27 and discuss whether there are reasons to change current practice.

NOU 1997:27 (Nyttekostnadsanalyser – Prinsipper for lønnsomhetsvurderinger i offentlig sektor), discussed the appropriate size of marginal cost of public funds. They recommended that MCF in cost-benefit analyses should be set equal to 1.2, and this has been the recommended practise since. This report aims to re-evaluate the recommendation of NOU 1997:27 and discuss whether there are reasons to change current practice. First, different concepts of MCF used in the literature are introduced and illustrated by numerical examples. Second, an overview of estimates of MCF in different studies is provided. We conclude that we do not have firm ground to give a point estimate of MCF. Rather, we provide a broad overview of the contributions, which point in different directions. We recommend that more research should be conducted to evaluate and quantify unresolved aspects related to estimates of MCF. The conclusions are partly based on simulations with the general equilibrium model MSG-6. The MSG-simulations are thoroughly documented in a separate report (Bjertnæs, 2014).

About the publication

Title

The size of the marginal cost of public funds. A discussion with special relevance to Norway

Authors

Bjart Holtsmark, Geir H. Bjertnæs

Series and number

Reports 2015/13

Publisher

Statistisk sentralbyrå

Commissioning party

Finansdepartementet

Topic

Methods and documentation

ISBN (online)

978-82-537-9119-7

ISBN (printed)

978-82-537-9118-0

ISSN

1892-7513

Number of pages

31

Language

English

About Reports

Analyses and annotated statistical results from various surveys are published in the series Reports. Surveys include sample surveys, censuses and register-based surveys.

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