The Policy Elasticity
This paper illustrates how one can use causal effects of a policy change to measure its welfare impact without decomposing them into income and substitution effects. Often, a single causal effect suffices: the impact on government revenue. Because these responses vary with the policy in question, I term them policy elasticities, to distinguish them from Hicksian and Marshallian elasticities. The model also formally justifies a simple benefit-cost ratio for non-budget neutral policies. Using existing causal estimates, I apply the framework to five policy changes: top income tax rate, EITC generosity, food stamps, job training, and housing vouchers.
|Date of creation:||Jun 2013|
|Date of revision:|
|Publication status:||published as Nathaniel Hendren, 2016. "The Policy Elasticity," Tax Policy and the Economy, vol 30(1), pages 51-89.|
|Note:||DEV HC HE LS PE|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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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.:
- Eissa, Nada & Hoynes, Hilary, 2011.
"Redistribution And Tax Expenditures: The Earned Income Tax Credit,"
National Tax Journal,
National Tax Association, vol. 64(2), pages 689-729, June.
- Nada Eissa & Hilary Hoynes, 2008. "Redistribution and Tax Expenditures: The Earned Income Tax Credit," NBER Working Papers 14307, National Bureau of Economic Research, Inc.
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