Conclusions and Policy Implications 273 



some states and many local jurisdictions, however, account must 

 be taken of constitutional limitations on the purposes to which 

 public revenues can be put. While these may be subject to change, 

 such limitations constitute practical obstacles to development 

 under local auspices. 



We have demonstrated in the body of this study that market 

 prices and revenues are not always adequate guides to investment — 

 and, where they are not, public intervention is required to achieve 

 efficiency objectives. Efficiency is not the automatic result of public 

 intervention, however. A major advantage of public authority is 

 the ability through its taxing power to raise revenue which is 

 independent of the marketability of the commodities or services to 

 be provided. This advantage has risks. Access to financial resources 

 without the discipline of the market requires spelling out explicitly 

 the economically efficient operating rules to safeguard the efficiency 

 objectives which such public expenditure is expected to achieve. 

 Moreover, if the gains in efficiency result in a distribution of bene- 

 fits different from the incidence of the costs, equity considerations 

 are involved. 



In addressing the question of the cost associated with raising 

 public revenues — limited to the cases where such funds would be 

 raised by federal taxation — we have recognized that taxes involve 

 a reduction of private investment and consumption which repre- 

 sents opportunities foregone as a result of taxes. Given the current 

 economic conditions and the most realistic tax alternatives, we have 

 estimated the social cost of tax-raised revenue to be on the order of 

 5 or 6 per cent. That is, if economic advantages were not to be 

 sacrificed, annual average benefits at the margin for any project 

 would have to exceed the annual operating, maintenance, and amor- 

 tization charges on capital by an amount equivalent to 5 or 6 per 

 cent on investment. Public revenue used for projects whose 

 economic, as contrasted with financial, returns did not measure up 

 to this rate would represent investment in applications providing 

 a lower social return than that available from uses in alternative 

 applications. If, however, projects promising benefits in excess of 

 5 to 6 per cent on investment were not undertaken, the rate of 

 development of the nation's water resources would be less than that 

 required to achieve conditions of general economic efficiency. The 

 results would appear as a lower national income and product than 

 potentially would be possible. 



