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.
- The following posts may be related...(the database guesses):
- Trading Funds report says: marginal cost is a good thing (12 March 2008; score: 41.8%)
- Trading Funds report: is PSI the new electricity and roads? (14 March 2008; score: 28%)
- How long does it take a government to do an economics study? (4 May 2006; score: 26.15%)
- Trading Funds report first glance: economists, start here (12 March 2008; score: 25.01%)
- Free access to science speeds its use; would the same happen with government data? (16 May 2006; score: 24.83%)