Benefit–Cost Analysis of Government Spending

This article applies economic theory to the benefit–cost analysis (BCA) of government spending. It describes overlooked contrasts between how BCA should be performed for spending versus regulation in practice. It is motivated by the recent revisions to US government guidance on BCA for spending and expansions of the funds covered by these rules. The article covers the discount rate, the costs of performing BCAs, the use of benefit–cost ratios versus net benefits, distributional analysis, the marginal cost of public funds, and public disclosure. It also discusses some challenges for the future given on-the-ground realities.