The Marginal Cost of Public Funds for Excise Taxes in Thailand

We extend the Ahmad and Stern (1984) framework for calculating the marginal cost of public funds (MCF) for excise taxes in Thailand by incorporating non-tax distortions caused by (a) environmental externalities, (b) public expenditure externalities, (c) market power in setting prices, (d) addiction, and (e) smuggling or tax evasion. Our calculations, based on our benchmark parameter values, indicates that the MCFs are 0.532 for fuel excise taxes, 2.187 for tobacco excise taxes, 2.132 for alcohol excise taxes and 1.080 for the VAT. Using pro-poor distributional weights does not change the relative social marginal cost of raising revenues through the excise taxes.