Free Our Data: the blog

A Guardian Technology campaign for free public access to data about the UK and its citizens

What does the phrase “marginal social cost” mean?

Not being trained in economics, I’ve been wrestling with a phrase that I found in this part of the Treasury’s 2000 Spending Review.

Specifically, it talks about the idea of making data generated by government agencies free, which of course has to be done by replacing the revenues they lose (because they no longer sell that data commercially) with money raised from taxpayers.

The relevant paragraph (5.7) says in part:

If it did so however the Government would need to fund the resulting public expenditure from taxation. But taxation also normally mis-allocates society’s assets. Taxation absorbs resources and changes behaviour. The marginal social cost of raising public funds is generally agreed to be around 20-30% of the value of the extra tax receipts.

Emphasis my own. (How wonderful, by the way, to see the Treasury – particularly Gordon Brown’s Treasury – arguing against taxation. This is not a political point, but irony doesn’t come any richer.)

First, could someone explain what that phrase about the marginal social cost actually means? I suspect it means that there’s an overhead of 20-30% in running a public body compared to a private one. But I can’t find a clear example or definition.

Secondly, that figure seems to come from Ruggieri’s 1999 paper, which in its outline says it’s for “The marginal cost of public funds in closed and small open economies”. Does the UK count for economic purposes as a closed or small open economy? Your input very welcome.

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