The Measurement of the Benefits of Public Inputs with Distortionary Taxation.

This paper derives formulae that show the marginal benefits of public inputs in second-best economies with tax distortions. The values of the change in the aggregate net output vector (and in some cases the change of profit income) evaluated at appropriate shadow prices show their marginal benefits. These shadow prices depend on which taxation scheme you can perturb when the amount of a public input is increased. The author considers the three cases where he can change (1) all indirect tax rates and all corporate income tax rates, (2) all lump-sum transfers, and (3) some part of indirect tax rates.