I. INTRODUCTION The marginal cost of public (MCF) is defined as the full cost to the private sector of raising an additional dollar of tax revenue, including deadweight loss or excess burden of taxation imposed on taxpayers. Much of the theoretical literature on the MCF is cast in the framework of a one-consumer economy. However, the main reason why we have distortionary taxes in the first place is precisely because of the need for redistribution or the existence of consumers with heterogeneity. In view of this inconsistency, several papers, including Dahlby (1998) and Sandmo (1998), have recently started addressing the so-called social marginal cost of public funds (SMCF) in models with heterogenous consumers. (1) These papers highlight how the redistributive concern may alter the calculation of the SMCF. (2) In previous studies on the MCF or SMCF, the existing of status quo tax system has been assumed to be either arbitrary or optimal. (3) It is arguable, however, that the existing tax system is neither arbitrary nor optimal but rather represents a political equilibrium. The approach adopted by Hettich and Winer (1999) and Persson and Tabellini (2000) corroborates this argument. In surveying the political economy of public finance, the authors of these two books explicitly portrayed public policy as the equilibrium outcome of some specified political process. In this note, we study the SMCF issue on the basis of the plausible premise that the existing tax system itself represents a political equilibrium. The calculation of the SMCF is basically a normative exercise. The premise that the existing tax system is a policy outcome in political equilibrium will enable us to exploit the positive property of political equilibrium in this normative exercise. As an illustration of our approach, we revisit the political economy of redistributive taxation as set out in Meltzer and Richard (1981) (hereafter, M-R). The M-R model holds a prominent position in the redistribution literature and has been elaborated and extended in many directions (Persson and Tabellini 2000, Part II). (4) Section II overviews the M-R model. Sections III and IV derive and discuss the SMCF in the M-R economy. An interesting feature of our finding is that the degree of income inequality as measured by the ratio of mean to median income can play an important role in estimating the SMCF and judging whether the level of redistribution is excessive or inadequate. II. THE M-R MODEL A. Economy Consideran economy in which there are n (1) [u.sup.i] = u([c.sup.i],[l.sup.i]), i = 1, ..., n. This utility function is assumed to be smooth and possess the usual properties. The income tax system consists of two parameters: a marginal tax rate t and a lump-sum grant a. The tax system pays the lump-sum grant or demogrant a to each individual and finances the payment by imposing the marginal tax rate t on all earned income. (5) The budget constraint facing individual i is: (2) [c.sup.i] = (1 - t)[w.sup.i][L.sup.i] + a, i = 1, ..., n. where [L.sup.i] denotes the labor supply with [L.sup.i] + [l.sup.i] = 1. From Equations (1) and (2), we can derive the indirect utility function: (3) [v.sup.i] = v((1 - t)[w.sup.i], a) = u((1 - t)[w.sup.i][L.sup.i] + a, 1 - [L.sup.i]), i = 1, ..., n. It is assumed that the government budget is balanced. Denoting per capita pretax income by y, we then have: (4) ty = a where y = [summation][y.sup.i]/n with [y.sup.i] = [w.sup.i][L.sup.i]. B. Political Economy The preferences of individuals qua voters over income tax policy are represented by the indirect utility function (3). …