Welfare Cost Measurement and Excess Burden in CGE Models.

Triest (1990) argues that measuring the marginal cost of public funds (MCF) and the marginal excess burden (MEB) requires equivalent variation measures: MCF should be evaluated at consumer prices while MEB requires the use of producer prices. This paper follows up on Triest's argument by showing how these two alternative measures of welfare change respond to changes in some of the central parameters in a CGE model; viz., elasticities of substitution, budget shares, the level of initial tax rates, and the combination of labour and consumption taxes. Our findings highlight the idea that MCF tells little or nothing about MEB, and vice versa.