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Welfare Analysis Meets Causal Inference

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  • Amy Finkelstein
  • Nathaniel Hendren

Abstract

We describe a framework for empirical welfare analysis that uses the causal estimates of a policy's impact on net government spending. This framework provides guidance for which causal effects are (and are not) needed for empirical welfare analysis of public policies. The key ingredient is the construction of each policy's marginal value of public funds (MVPF). The MVPF is the ratio of beneficiaries' willingness to pay for the policy to the net cost to the government. We discuss how the MVPF relates to "traditional" welfare analysis tools such as the marginal excess burden and marginal cost of public funds. We show how the MVPF can be used in practice by applying it to several canonical empirical applications from public finance, labor, development, trade, and industrial organization.

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  • Amy Finkelstein & Nathaniel Hendren, 2020. "Welfare Analysis Meets Causal Inference," Journal of Economic Perspectives, American Economic Association, vol. 34(4), pages 146-167, Fall.
  • Handle: RePEc:aea:jecper:v:34:y:2020:i:4:p:146-67
    DOI: 10.1257/jep.34.4.146
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chris Sampson’s journal round-up for 30th November 2020
      by Chris Sampson in The Academic Health Economists' Blog on 2020-11-30 12:00:05

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    3. Boeri, Tito & Di Porto, Edoardo & Naticchioni, Paolo & Scrutinio, Vincenzo, 2021. "Friday Morning Fever. Evidence from a Randomized Experiment on Sick Leave Monitoring in the Public Sector," CEPR Discussion Papers 16104, C.E.P.R. Discussion Papers.
    4. Anikó Bíró & Daniel Prinz & László Sándor, 2021. "The minimum wage, informal pay and tax enforcement," IFS Working Papers W21/41, Institute for Fiscal Studies.
    5. Arthur Seibold & Sebastian Seitz & Sebastian Siegloch, 2022. "Privatizing Disability Insurance," CESifo Working Paper Series 9979, CESifo.
    6. Joan Costa-i-Font & Nilesh Raut, 2021. "Long-Term Care Partnership Effects on Medicaid and Private Insurance," CESifo Working Paper Series 9335, CESifo.
    7. Spackman, Michael, 2021. "Social discounting and the cost of public funding in practice," LSE Research Online Documents on Economics 111490, London School of Economics and Political Science, LSE Library.
    8. Adachi, Takanori & Fabinger, Michal, 2022. "Pass-through, welfare, and incidence under imperfect competition," Journal of Public Economics, Elsevier, vol. 211(C).
    9. Cortnie Shupe, 2021. "Public Health Insurance and Medical Spending: Evidence from the ACA Medicaid Expansion," CESifo Working Paper Series 8827, CESifo.
    10. Balakina, Olga & Balasubramaniam, Vimal & Dimri, Aditi & Sane, Renuka, 2021. "Unshrouding product-specific attributes through financial education," Working Papers 21/344, National Institute of Public Finance and Policy.
    11. Dave Donaldson, 2022. "Blending Theory and Data: A Space Odyssey," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 185-210, Summer.
    12. Egor Malkov, 2021. "Welfare Effects of Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach," Papers 2108.09981, arXiv.org, revised Sep 2021.
    13. Maibom, Jonas, 2021. "The Welfare Effects of Mandatory Reemployment Programs: Combining a Structural Model and Experimental Data," IZA Discussion Papers 14866, Institute of Labor Economics (IZA).
    14. Seibold, Arthur & Seitz, Sebastian & Siegloch, Sebastian, 2022. "Privatizing disability insurance," ZEW Discussion Papers 22-010, ZEW - Leibniz Centre for European Economic Research.
    15. Ganesh Karapakula, 2022. "An Axiomatic Framework for Cost-Benefit Analysis," Papers 2207.13033, arXiv.org.
    16. Craig McIntosh & Andrew Zeitlin, 2021. "Cash versus Kind: Benchmarking a Child Nutrition Program against Unconditional Cash Transfers in Rwanda," Papers 2106.00213, arXiv.org.
    17. Harding, Matthew & Kettler, Kyle & Lamarche, Carlos & Ma, Lala, 2021. "The (Alleged) Environmental and Social Benefits of Dynamic Pricing," IZA Discussion Papers 14846, Institute of Labor Economics (IZA).
    18. Egor Malkov, 2021. "Welfare Effects of the Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach," Working Papers 590, ECINEQ, Society for the Study of Economic Inequality.

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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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