IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods

  • Raj Chetty

    ()

    (Department of Economics, Harvard University, Cambridge, Massachusetts 02138)

The debate between structural and reduced-form approaches has generated substantial controversy in applied economics. This article reviews a recent literature in public economics that combines the advantages of reduced-form strategies—transparent and credible identification—with an important advantage of structural models—the ability to make predictions about counterfactual outcomes and welfare. This literature has developed formulas for the welfare consequences of various policies that are functions of reduced- form elasticities rather than structural primitives. I present a general framework that shows how many policy questions can be answered by estimating a small set of sufficient statistics using program-evaluation methods. I use this framework to synthesize the modern literature on taxation, social insurance, and behavioral welfare economics. Finally, I discuss problems in macroeconomics, labor, development, and industrial organization that could be tackled using the sufficient statistic approach.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.economics.050708.142910
Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 1 (2009)
Issue (Month): 1 (05)
Pages: 451-488

as
in new window

Handle: RePEc:anr:reveco:v:1:y:2009:p:451-488
Contact details of provider: Postal:
Annual Reviews 4139 El Camino Way Palo Alto, CA 94306, USA

Web page: http://www.annualreviews.org

Order Information: Web: http://www.annualreviews.org/action/ecommerce

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 157-206.
  2. David Card & Raj Chetty & Andrea Weber, 2006. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," NBER Working Papers 12639, National Bureau of Economic Research, Inc.
  3. Lalive, Rafael & van Ours, Jan C & Zweimüller, Josef, 2005. "How Changes in Financial Incentives Affect the Duration of Unemployment," CEPR Discussion Papers 4986, C.E.P.R. Discussion Papers.
  4. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, October.
  5. James R. Hines, 1999. "Three Sides of Harberger Triangles," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 167-188, Spring.
  6. Nada Eissa & Jeffrey B. Liebman, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 605-637.
  7. Jonathan Gruber & David A. Wise, 1999. "Introduction to "Social Security and Retirement around the World"," NBER Chapters, in: Social Security and Retirement around the World, pages 1-35 National Bureau of Economic Research, Inc.
  8. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  9. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
  11. repec:pri:cheawb:deaton%20instruments%20of%20development%20keynes%20lecture%202009 is not listed on IDEAS
  12. B. Douglas Bernheim & Antonio Rangel, 2008. "Beyond Revealed Preference: Choice Theoretic Foundations for Behavioral Welfare Economics," NBER Working Papers 13737, National Bureau of Economic Research, Inc.
  13. Raj Chetty & Adam Szeidl, 2006. "Consumption Commitments and Risk Preferences," NBER Working Papers 12467, National Bureau of Economic Research, Inc.
  14. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, Enero.
  15. Angus Deaton, 2009. "Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development," Working Papers 1122, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  16. Tuomala, Matti, 1990. "Optimal Income Tax and Redistribution," OUP Catalogue, Oxford University Press, number 9780198286059, December.
  17. Bruce D. Meyer & Dan T. Rosenbaum, 1999. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," NBER Working Papers 7363, National Bureau of Economic Research, Inc.
  18. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  19. Raj Chetty & Adam Looney, 2005. "Consumption Smoothing and the Welfare Consequences of Social Insurance in Developing Economies," NBER Working Papers 11709, National Bureau of Economic Research, Inc.
  20. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
  21. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  22. Slemrod, Joel, 2006. "The Role of Misconceptions in Support for Regressive Tax Reform," National Tax Journal, National Tax Association, vol. 59(1), pages 57-75, March.
  23. Mark Cullen & Liran Einav & Amy Finkelstein, 2009. "Estimating Welfare in Insurance Markets Using Variation in Prices," Discussion Papers 08-046, Stanford Institute for Economic Policy Research.
  24. Rasmus Lentz, 2009. "Optimal Unemployment Insurance in an Estimated Job Search Model with Savings," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 37-57, January.
  25. Raj Chetty & Emmanuel Saez, 2009. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," NBER Working Papers 14836, National Bureau of Economic Research, Inc.
  26. Saez, Emmanuel & Chetty, Nadarajan, 2010. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," Scholarly Articles 9696326, Harvard University Department of Economics.
  27. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc.
  28. Stefano DellaVigna & M. Daniele Paserman, 2005. "Job Search and Impatience," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 527-588, July.
  29. Hamermesh, Daniel S, 1982. "Social Insurance and Consumption: An Empirical Inquiry," American Economic Review, American Economic Association, vol. 72(1), pages 101-113, March.
  30. repec:pri:rpdevs:instruments_of_development.pdf is not listed on IDEAS
  31. Emmanuel Saez, 2001. "Using Elasticities to Derive Optimal Income Tax Rates," Review of Economic Studies, Oxford University Press, vol. 68(1), pages 205-229.
  32. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
  33. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  34. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc.
  35. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
  36. Michael Greenstone & Justin Gallagher, 2005. "Does Hazardous Waste Matter? Evidence from the Housing Market and the Superfund Program," Working Papers 2005.149, Fondazione Eni Enrico Mattei.
  37. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  38. repec:pri:cepsud:178lee is not listed on IDEAS
  39. Slemrod, Joel, 1995. "Income Creation or Income Shifting? Behavioral Responses to the Tax Reform Act of 1986," American Economic Review, American Economic Association, vol. 85(2), pages 175-180, May.
  40. Rust, J., 1994. "How Social Security and Medicare Affect Retirement Behavior in a World of Incomplete Markets," Working papers 9430, Wisconsin Madison - Social Systems.
  41. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
  42. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  43. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-620, September.
  44. Raj Chetty, 2005. "A General Formula for the Optimal Level of Social Insurance," NBER Working Papers 11386, National Bureau of Economic Research, Inc.
  45. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence From a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 635-672.
  46. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
  47. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2008. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," NBER Working Papers 13719, National Bureau of Economic Research, Inc.
  48. Diamond, P., 1994. "Optimal Income Taxation: An Exemple with a U-Shaped Pattern of Optimal Marginal Tax Rates," Working papers 94-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  49. Jesse M. Shapiro, 2003. "Is there a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle," Microeconomics 0304005, EconWPA, revised 21 Apr 2003.
  50. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
  51. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
  52. Robert Shimer & Ivan Werning, 2006. "Reservation Wages and Unemployment Insurance," NBER Working Papers 12618, National Bureau of Economic Research, Inc.
  53. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  54. repec:pri:rpdevs:instruments_of_development is not listed on IDEAS
  55. Guido W. Imbens, 2010. "Better LATE Than Nothing: Some Comments on Deaton (2009) and Heckman and Urzua (2009)," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 399-423, June.
  56. Joshua D. Angrist & Kathryn Graddy & Guido W. Imbens, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 499-527.
  57. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  58. Hausman, Jerry A & Newey, Whitney K, 1995. "Nonparametric Estimation of Exact Consumers Surplus and Deadweight Loss," Econometrica, Econometric Society, vol. 63(6), pages 1445-1476, November.
  59. Lawrence H. Goulder & Roberton C. Williams III, 2003. "The Substantial Bias from Ignoring General Equilibrium Effects in Estimating Excess Burden, and a Practical Solution," Journal of Political Economy, University of Chicago Press, vol. 111(4), pages 898-927, August.
  60. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
  61. Shoven, John B, 1976. "The Incidence and Efficiency Effects of Taxes on Income from Capital," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1261-1283, December.
  62. Francine D. Blau & Lawrence M. Kahn, 2007. "Changes in the Labor Supply Behavior of Married Women: 1980–2000," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 393-438.
  63. repec:pri:cheawb:deaton%20instruments%20of%20development%20keynes%20lecture%202009.pdf is not listed on IDEAS
  64. repec:pri:indrel:dsp019019s246g is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:anr:reveco:v:1:y:2009:p:451-488. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (http://www.annualreviews.org)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.