Working Paper: NBER ID: w27242
Authors: Henrik Kleven
Abstract: This paper reviews and generalizes the sufficient statistics approach to policy evaluation. The idea of the approach is that the welfare effect of policy changes can be expressed in terms estimable reduced-form elasticities, allowing for policy evaluation without estimating the structural primitives of fully specified models. The approach relies on three assumptions: that policy changes are small, that government policy is the only source of market imperfection, and that a set of high-level restrictions on the environment and on preferences can be used to reduce the number of elasticities to be estimated. We generalize the approach in all three dimensions. It is possible to develop transparent sufficient statistics formulas under very general conditions, but the estimation requirements increase greatly. Starting from such general formulas elucidates that feasible empirical implementations are in fact structural approaches.
Keywords: No keywords provided
JEL Codes: D01; D04; D1; D6; H0; H2; H3; J08; J2; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| welfare effect of small policy changes (D69) | fiscal externality (D62) |
| behavioral responses to tax reforms (H31) | fiscal externality (D62) |
| tax reforms (H29) | tax revenue leaks (H26) |
| efficiency effect of small tax reform (H21) | fiscal externality from behavioral responses (H39) |
| sufficient statistics approach (C51) | evaluation of welfare effects (D69) |