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Is Economics Useful for Public Policy?

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  • Alm, James

Abstract

Economists have always played an important role in major public policy debates. Even so, I believe that the role of economists in these public policy discussions has often been misguided because it has typically relied upon “best practices,†stated in the form of “general guidelines†or even “universal principles.†However, “best practices†are not best if the specific situation does not conform with the assumptions that underlie the advice. So my first conclusion is a cautionary, and negative, one: Specific circumstances differ so profoundly across individuals, firms, markets, countries, and time that most any attempt to define “best practices†that apply in all circumstances will lead to profoundly misleading public policy recommendations. However, even if economics cannot identify “the†truth, it can often identify “a†truth. So my second conclusion is a more positive one: Economists should continue to develop multiple theories that inform public policies, but we should also focus our efforts on identifying and testing the critical assumptions that drive the results of these theories, recognizing that the validity of any assumptions will depend intimately on specific circumstances. I illustrate these two main conclusions with specific examples from my own work. I conclude with some “best practices†recommendations of my own, recognizing the obvious irony of such an effort.

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  • Alm, James, 2018. "Is Economics Useful for Public Policy?," Working Paper Series 6824, Victoria University of Wellington, Chair in Public Finance.
  • Handle: RePEc:vuw:vuwcpf:6824
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    File URL: http://researcharchive.vuw.ac.nz/handle/10063/6824
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    Cited by:

    1. Rickman, Dan S. & Wang, Hongbo, 2018. "U.S. State and Local Fiscal Policy and Economic Activity: Do We Know More Now?," MPRA Paper 88422, University Library of Munich, Germany.
    2. Alm, James & Leguizamon, J. Sebastian, 2018. "The housing crisis, foreclosures, and local tax revenues," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 300-311.

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    Keywords

    Public policy; Economics; Income tax;

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • H8 - Public Economics - - Miscellaneous Issues

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