The Policy Elasticity

Nathaniel Hendren ()

No 19177, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D6 H0 I3 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-pbe and nep-reg
Note: DEV EH LS PE
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Citations: View citations in EconPapers (14)

Published as Nathaniel Hendren, 2016. "The Policy Elasticity," Tax Policy and the Economy, vol 30(1), pages 51-89.
Published as The Policy Elasticity , Nathaniel Hendren. in Tax Policy and the Economy, Volume 30 , Brown. 2016

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