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The tax implications of cost shifting in cost-benefit analysis in mental health

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This paper examines the tax implications of systems of care for psychiatric patients that rely more on the provision of services in the community rather than in state hospitals. State governments pay the costs of patient care in state hospitals, but share costs with the federal government (via Medicaid) for community based care. Taxes create distortions as gauged by the marginal cost of public funds (MCF). Since state and federal governments use different tax mixes, one needs a MCF for each form of government to evaluate system changes. Separate estimates of the MCF for each state in the USA are derived. Only for Alaska is cost shifting welfare improving.

Document Type: Research Article


Affiliations: Department of Economics, Fordham University, Bronx, NY 10458, USA

Publication date: May 1, 2003

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