On Calculating Welfare Losses of Taxation and Public Provision on the margin and to a degree

In the paper an index number measuring inefficiency of taxation is introduced which is based on an economy-wide generalisation of the input distance function. Related concepts are an input based quantity index, the index of real endowment, and a productivity index indicating effectiveness of the public sector and the society's welfare index which offer a convenient summary way of analyzing the extent and nature of government intervention from the perspective of welfare and standard-of-living in the society. These indices should have wide applicability since they are based on a reinterpretation of similar concepts used in production theory. Hedonic scales seem particularly promising in offering a practical way of measuring the extent of intervention through the change in the marginal rates of substitution of the private goods.