Uncertain Parameter Values and the Choice Among Policy Options

Don Fullerton () and Andrew Lyon

No 1111, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we use tax policy choices to illustrate and investigate the more general problem of using uncertain parameter values in models to evaluate policy choices. We show, for this tax example, how debate on an elasticity parameter translates into a debate about policy choices, andvice versa. To construct this example, we suppose that the choice among four particular tax reform options is based on a single measure of efficiency gain. We show how this gain from each reform depends upon the elasticity of saving with respect to the net rate of return. Within quite narrow and reasonable bounds for the elasticity parameter, we find regions in which each of three different tax reforms turns out to dominate the others.

Date: 1983-04
Note: PE
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Published as Fullerton, Don and Andrew B. Lyon. "Uncertain Parameter Values and the Choice Among Policy Options," Journal of Public Economics, Vol. 30, No. 1. (June 1986), pp. 109-116.

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