The Appropriate Benefit-Cost Ratio for Public Spending

Abstract

The optimal level of public spending is related to what public spending/projects are regarded as appropriate. This is in turn related to the benefit-cost ratio used to assess public projects. The use of a benefit-cost ratio more stringent (i.e. larger) than one would generally lead to a smaller level of public spending. Recently, some prominent economists have expressed apparently rather contrasting views on this issue. This chapter reconciles and qualifies their arguments.