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

Raj Chetty

Annual Review of Economics, 2009, vol. 1, issue 1, 451-488

Abstract: 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.

Keywords: program evaluation; treatment effects; public economics; taxation; social insurance (search for similar items in EconPapers)
JEL-codes: C52 D03 E61 H20 H24 J65 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (474)

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Working Paper: Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods (2009)
Working Paper: Sufficient Statistics for Welfare Analysis: A Bridge Between Structural and Reduced-Form Methods (2008)
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