Public expenditures and environmental protection

Public expenditures and environmental protection

by Gunnar S. Eskeland

Part of Policy research working paper ;

2000
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Pigou's conjecture was that under costly taxation public expenditures should not reach the point where marginal benefits equal marginal costs. In the treatment here, public expenditures (and environmental protection) may provide public goods for consumption but also collective inputs for production. When the benefits are in production, the cost of funds is irrelevant. Why? Collective inputs benefit goods that are taxed, while for public goods the shadow price of funds reduces provision as if they were.

Discussion questions for Public expenditures and environmental protection

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  1. 1

    How does Eskeland’s re-evaluation of Pigou’s conjecture challenge traditional economic views on public spending and taxation that you may have previously held?

  2. 2

    In what ways does the distinction between public expenditures that act as consumption goods versus collective inputs for production change our approach to evaluating government budgets?

  3. 3

    Eskeland argues that when public expenditures serve as collective inputs for production, the traditional cost of funds becomes irrelevant—how does this counterintuitive idea alter your perspective on fiscal policy?

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