Marginal Value of Public Funds — Canada

The Problem

Standard public finance evaluation asks: "Does this reform save money?" The Marginal Cost of Public Funds — the dominant metric in Canadian policy analysis — measures the efficiency loss from raising revenue but says nothing about what that revenue buys in social welfare. The result is a systematic bias: costs are counted carefully, benefits are not. Programs that reduce poverty, improve access, and build trust are chronically undervalued relative to their fiscal cost.

The Approach

The Marginal Value of Public Funds reframes the central question: "Does this spending increase inclusive social welfare once fiscal, distributional, and trust effects are fully counted?" By computing the ratio of welfare gains to net fiscal cost — and applying distributional weights that recognize a dollar is worth more to a low-income household — the MVPF provides a rigorous, transparent, benefit-inclusive toolkit for evaluating tax and transfer reform across heterogeneous program types.

Partners & Funders

Full Strategic Partner

Maytree

Maytree is a Canadian foundation committed to advancing solutions to poverty and systemic inequality. As the full strategic partner on this project, Maytree supports the research program as funder, engages as a research collaborator shaping the questions and frameworks, and drives knowledge mobilization to bring findings into policy conversations across Canada.

Funder Research Partner Knowledge Mobilization

Visit Maytree ↗

Internship Funder

Mitacs Accelerate

Mitacs is a national research organization that fosters innovation in Canada through research and training programs. The Mitacs Accelerate grant supports Selvia Arshad's doctoral research internship on this project — bringing graduate-level econometric and welfare-theoretic expertise directly into the MVPF research program and connecting academic research to real-world policy application.

Internship Funder Graduate Research Support

Visit Mitacs ↗

About This Research

Canadian policy evaluation has a structural blind spot. The dominant metric — the Marginal Cost of Public Funds (MCPF) — measures the efficiency loss from raising revenue but says almost nothing about what that revenue buys in social welfare. The result is a systematic bias: costs are counted carefully, benefits are not. Programs that reduce poverty, improve access, and build trust in government are chronically undervalued relative to their fiscal cost.

The MCPF has three core problems. First, it has a cost-only focus — existing models prioritize monetizing the efficiency costs of raising revenue while making little effort to measure the benefits of the programs that spending funds. Second, it relies on a representative agent assumption that ignores how behavioral responses vary dramatically across gender, income, marital status, and other dimensions. Third, in practical application practitioners routinely add an arbitrary 50 cents to every dollar of public spending to reflect tax distortions — a practice that ignores distributional benefits entirely and systematically undervalues high-return programs.

The Marginal Value of Public Funds offers a rigorous alternative. It reframes the central question from "What does this cost?" to "Does this spending increase inclusive social welfare once fiscal, distributional, and trust effects are fully counted?" The MVPF is defined as the ratio of willingness to pay for a benefit to the net cost to government — evaluated using causal evidence from real-world policy interventions rather than stylized structural models. It is symmetric, capturing both costs and benefits on a common scale; long-run in focus, tracking future tax contributions and savings generated by better outcomes today; and equity-sensitive, allowing for distributional weights that recognize a dollar is worth more to a low-income household. This research represents the first comprehensive application of the MVPF framework to Canadian social transfers.

Research Elements

Element 1

Tax Administration Reform

Introduces the MVPF-TAdmin framework for evaluating tax administration reforms across three dimensions: fiscal efficiency, distributional equity, and legitimacy. Applied to Canada's Automatic Federal Benefits initiative as a proof of concept, the framework asks whether the design quality of administrative reform generates positive or negative social returns — a question the MCPF cannot answer.

Forthcoming · Canadian Tax Journal

Element 2

Child and Family Benefits

Applies the MVPF to Canadian child and family programs — the Canada Child Benefit, its predecessors, and the federal childcare expansion — to provide the first benefit-inclusive comparative welfare analysis of these programs. The research draws on quasi-experimental variation in provincial and federal policy to isolate causal effects on maternal labour supply, child development, and long-run fiscal outcomes.

Active Research

Element 3

The Tax and Benefits System

Extends the MVPF to the broader architecture of Canada's integrated tax and transfer system, examining how program interactions — benefit clawbacks, effective marginal tax rates, and access gaps — shape the welfare value of the system as a whole. The analysis uses Statistics Canada's SPSD/M and the Canadian Tax and Credit Simulator to model complex tax-benefit interactions and their distributional consequences.

Active Research

Research Outputs

Active & Growing

📄

Beyond Cost and Yield — An MVPF-TAdmin Framework for Evaluating Tax Administration Reforms through Public Value, Equity, and Welfare

Selvia Arshad, Gillian Petit and Lindsay M. Tedds · Canadian Tax Journal · Accepted February 2026

Introduces the MVPF-TAdmin framework — a welfare-based lens for evaluating tax administration reforms across three dimensions: fiscal efficiency, distributional equity, and legitimacy. Applied to Canada's Automatic Federal Benefits initiative as a proof of concept, showing how design quality determines whether a reform generates positive or negative social returns.

ENABLE Forthcoming

⏳ Forthcoming

💬

From Cost to Investment: Reframing Social Spending in an Affordability Era

Gillian Petit and Selvia Arshad · IRPP · 2026

Argues that Canada's capital budgeting framework misclassifies social spending as operating expenditure, systematically undervaluing programs that build human and social capacity. Applies MVPF logic to reframe transfers and supports as social investment — analytically more honest and politically more tractable than austerity framing.

ENABLE Available

Read ↗

📕

Tax Welfare and Optimal Taxation

Lindsay M. Tedds · Chapter 15 in Public Finance in Canada, 7th edition · Nelson

Develops the full welfare architecture linking deadweight loss, the Marginal Cost of Public Funds, and the Marginal Value of Public Funds into a unified framework for tax design. The chapter introduces MVPF as the benefit-side complement to MCPF and situates both within optimal tax theory — from the Ramsey rule through Mirrlees — grounding the MVPF research program in core public finance pedagogy.

ENABLE Forthcoming

⏳ Forthcoming

Knowledge Mobilization

🖼️

Beyond the Price Tag: Redefining How We Value Public Programs

Lindsay M. Tedds, Gillian Petit and Selvia Arshad · Research Poster · 2026

Visual overview of the MVPF research program — contrasting the traditional MCPF approach with the MVPF framework across primary focus, benefit valuation, and evidence base. Designed for conference and public engagement use.

View Poster ↗

🎥

MVPF Explainer — Audio/Video Overview

Lindsay M. Tedds, Gillian Petit and Selvia Arshad · NotebookLM · 2026

An accessible audio and video explainer of the MVPF framework and its application to Canadian policy evaluation — produced for broad public and policy audience engagement.

Watch ↗

Interested in this research?

ENABLE Stream · INCLUSIECON · University of Calgary

Partner With Us ← All Research