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|
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|Note:||DEV HC HE LS PE|
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- 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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