Positive vs Normative Analysis in Public Economics

They make weak predictions that are not always accurate

Recent work in economics

Difference-in-similarities

<p>Causal Analysis</p> Signup and view all the answers

<p>It offers well-identified empirical estimators for implementation</p> Signup and view all the answers

<p>Higher quality information with virtually no missing data or attrition</p> Signup and view all the answers

<p>Enabled the development of new research designs and the measurement of new variables</p> Signup and view all the answers

<p>Considering public sentiment when designing economic policies</p> Signup and view all the answers

<p>Emphasis on understanding and influencing individual behaviors for policy design</p> Signup and view all the answers

<p>By providing the ability to measure new variables such as non-market interactions and emotions</p> Signup and view all the answers

<p>They may hide deviations from optimization at the individual level.</p> Signup and view all the answers

<p>Not very successful, as they induce only a small group of individuals to respond.</p> Signup and view all the answers

<p>Understanding how people form perceptions and beliefs</p> Signup and view all the answers

<p>Stantcheva (2021), 'Understanding Tax Policy: How do people Reason?'</p> Signup and view all the answers

<p>Eliciting people's first-order concerns through text analysis of open-ended survey questions</p> Signup and view all the answers

<p>By changing default options</p> Signup and view all the answers

<p>By creating better counterfactuals for policy impacts</p> Signup and view all the answers

<p>Accounting for these gaps improves predictions about welfare consequences</p> Signup and view all the answers

<p>It incorporates behavioral factors to improve empirical predictions</p> Signup and view all the answers

<p>Decreasing tax deductions for capital pension contributions for high-income individuals</p> Signup and view all the answers

<p>Assign respondents to specific policy groups</p> Signup and view all the answers

<p>Opinion on whether progressive taxation reduces inequality and supports social programs</p> Signup and view all the answers

<p>Social preferences and behavioral responses</p> Signup and view all the answers

<p>By their responses and frequency patterns</p> Signup and view all the answers

<p>To capture support for progressive taxes and government intervention in reducing inequality</p> Signup and view all the answers

<p>Theoretical aspects</p> Signup and view all the answers

<p>Empirical predictions</p> Signup and view all the answers

<p>By deriving quantitative predictions</p> Signup and view all the answers

<p>Modern econometric tools understanding</p> Signup and view all the answers

<p>Empirical evidence-based approach</p> Signup and view all the answers

<p>Main source of news and political orientation</p> Signup and view all the answers

<p>Ranging from 'very conservative' to 'very liberal'</p> Signup and view all the answers

<p>One of three versions of an instructional video about tax policy</p> Signup and view all the answers

<p>How tax policy works</p> Signup and view all the answers

<p>Behavioral responses, efficiency effects, and effects on the broader economy</p> Signup and view all the answers

<p>Level of top federal taxes</p> Signup and view all the answers

<p>'Fairness concerns and distributional consequences'</p> Signup and view all the answers

<p>'Connecting experimental data to theoretical frameworks'</p> Signup and view all the answers

<p>'Decision-making informed by empirical data'</p> Signup and view all the answers

<p>'Government intervention and regulation'</p> Signup and view all the answers

<p>35-50%</p> Signup and view all the answers

<p>Public goods and welfare state</p> Signup and view all the answers

<p>Through the size and design of their 'governments' (informal and formal)</p> Signup and view all the answers

<ol> <li>When should the government intervene in the economy? 2. What is the effect of those interventions on economic outcomes? 3. Why do governments choose to intervene in the way that they do?</li> </ol> Signup and view all the answers

<p>Humans</p> Signup and view all the answers

<p>Role of the government in the economy</p> Signup and view all the answers

<p>Does not always work</p> Signup and view all the answers

<p>Narrow-minded view of individual behavior</p> Signup and view all the answers

<p>Effects that would be predicted if individuals did not change their behavior in response to the interventions.</p> Signup and view all the answers

<p>Effects that arise because individuals change their behavior in response to the interventions.</p> Signup and view all the answers

<p>It states that any Pareto efficient outcome can be reached by suitable redistribution of initial endowments.</p> Signup and view all the answers

<p>It explains how the political process produces decisions that affect individuals and the economy.</p> Signup and view all the answers

<p>Public Choice is a sub-field of political economy that focuses on government failures, situations where the government does not act in the benefit of society.</p> Signup and view all the answers

<p>Redistribution through tax and transfer systems can create a trade-off between equity (fairness) and efficiency.</p> Signup and view all the answers

<p>Governments may intervene by implementing policies such as corrective taxation to address individual failures.</p> Signup and view all the answers

<p>Governments estimate indirect effects to understand how individuals may change their behavior in response to interventions.</p> Signup and view all the answers

<p>Responses that appear consistent with optimization may mask significant deviations at the individual level</p> Signup and view all the answers

<p>They are not very successful in increasing savings rates</p> Signup and view all the answers

<p>Understanding how people form perceptions, beliefs, and attitudes</p> Signup and view all the answers

<p>Stantcheva (2021), “Understanding Tax Policy: How do people Reason?”, QJE</p> Signup and view all the answers

<p>Eliciting the people’s view</p> Signup and view all the answers

<p>How people think and how their views on economic and social policies emerge</p> Signup and view all the answers

<p>They may mask significant deviations from optimization at the individual level</p> Signup and view all the answers

<p>They induce only a small group of individuals to respond</p> Signup and view all the answers

<p>New policy tools, Better predictions, New welfare implications</p> Signup and view all the answers

<p>Capital pensions and annuity pensions</p> Signup and view all the answers

<p>Reduced from 59% to 45%</p> Signup and view all the answers

<p>1999</p> Signup and view all the answers

<p>Experienced utility</p> Signup and view all the answers

<p>Decision utility</p> Signup and view all the answers

<p>Pragmatic approach</p> Signup and view all the answers

<p>Neoclassical model</p> Signup and view all the answers

<p>Are individuals rational? Do they optimize in market settings?</p> Signup and view all the answers

<p>Highest level of education achieved, main source of news, political orientation</p> Signup and view all the answers

<p>From 'very conservative' to 'very liberal'</p> Signup and view all the answers

<p>One of three versions of an instructional video providing information about tax policy</p> Signup and view all the answers

<p>Level of top federal taxes, threshold for top income tax bracket, top tax rates in the 1950s, and more</p> Signup and view all the answers

<p>How tax policy works, behavioral responses, efficiency effects, distributional consequences, and fairness concerns</p> Signup and view all the answers

<p>To describe and predict economic phenomena</p> Signup and view all the answers

<p>They often diverge due to behavioral biases</p> Signup and view all the answers

<p>By considering real-world behavioral factors in policy design</p> Signup and view all the answers

<p>A tax that is a fraction of the prices</p> Signup and view all the answers

<p>Supply function S</p> Signup and view all the answers

<p>Pre-tax price p as a function of tax t</p> Signup and view all the answers

<p>Incidence on consumers</p> Signup and view all the answers

<p>(dq/dp)εS = 1+</p> Signup and view all the answers

<p>Increasing marginal cost of producing x</p> Signup and view all the answers

<p>Customers' responsiveness to price changes</p> Signup and view all the answers

<p>By characterizing dp/dt</p> Signup and view all the answers

<p>Price elasticity of supply εS</p> Signup and view all the answers

<p>Through wealth Z and utility functions</p> Signup and view all the answers

<p>Excise tax</p> Signup and view all the answers

<p>Difference-in-Difference estimation</p> Signup and view all the answers

<p>Indiana</p> Signup and view all the answers

<p>Gas price fall in September</p> Signup and view all the answers

<p>Reinstatement of tax</p> Signup and view all the answers

<p>~80%</p> Signup and view all the answers

<p>Different tax category</p> Signup and view all the answers

<p>'Tax Incidence'</p> Signup and view all the answers

<p>Analyzing the effects of tax policies on prices</p> Signup and view all the answers

<p>Economic and statutory incidence become equivalent</p> Signup and view all the answers

<p>Labor vs. capital taxation analysis</p> Signup and view all the answers

<p>The incidence of taxes on different factors of production</p> Signup and view all the answers

<p>Controlling for confounding variables that could influence outcomes</p> Signup and view all the answers

<p>Has no direct impact on market prices</p> Signup and view all the answers

<p>Tax increases always lead to higher profits for producers</p> Signup and view all the answers

<p>Consumer sensitivity to price changes</p> Signup and view all the answers

<p>Effects of taxes on market participants</p> Signup and view all the answers

<p>Influence of tax visibility on market outcomes</p> Signup and view all the answers

<p>Approximately 70%</p> Signup and view all the answers

<p>-0.1 to -0.6</p> Signup and view all the answers

<p>Prices rise by about 4%</p> Signup and view all the answers

<p>0.72</p> Signup and view all the answers

<p>Pass-through rate increases</p> Signup and view all the answers

<p>It increases</p> Signup and view all the answers

<p>Both retail and wholesale prices</p> Signup and view all the answers

<p>To understand pricing behavior</p> Signup and view all the answers

<p>Indiana (IN)</p> Signup and view all the answers

<p>Increases demand at the beginning of the month</p> Signup and view all the answers

<p>Difference-in-Difference estimation</p> Signup and view all the answers

<p>Fall and rise in price</p> Signup and view all the answers

<p>Tax Incidence</p> Signup and view all the answers

<p>Taxes included in posted prices</p> Signup and view all the answers

<p>Difference-in-Difference estimation</p> Signup and view all the answers

<p>Gas prices had already fallen before reinstatement</p> Signup and view all the answers

<p>4.5% change in IL, 4% change in IN</p> Signup and view all the answers

<p>Energy emergency declaration</p> Signup and view all the answers

<p>Difference-in-Difference</p> Signup and view all the answers

<p>Identification of potential asymmetries</p> Signup and view all the answers

<p>Tax incidence is the study of the effects of tax policies on prices, which has implications for producer and consumer rents. It is crucial in understanding the impact of tax policies on market outcomes and welfare.</p> Signup and view all the answers

<p>Economic and statutory incidence are equivalent only when prices are constant. Economic incidence refers to the true burden of the tax, considering how prices adjust, while statutory incidence refers to who legally remits the tax.</p> Signup and view all the answers

<p>Partial equilibrium incidence analysis focuses on understanding the impact of tax policies on specific markets, considering how changes in prices affect consumer and producer behavior.</p> Signup and view all the answers

<p>Salience effects can impact consumer behavior and perception of taxes, leading to changes in demand elasticity and market outcomes.</p> Signup and view all the answers

<p>An empirical application of tax incidence could involve studying the impact of increasing cigarette taxes on consumer behavior, producer profits, and government revenue.</p> Signup and view all the answers

<p>The elasticity of demand plays a crucial role in determining the incidence of a tax. Higher demand elasticity results in a greater burden on producers, while lower elasticity shifts the burden to consumers.</p> Signup and view all the answers

<p>In a graphical representation, tax incidence is shown by analyzing how the tax burden is shared between producers and consumers through the price adjustment. The area between the supply and demand curves represents the deadweight loss caused by the tax.</p> Signup and view all the answers

<p>Changes in production and utility functions impact the supply and demand curves, altering the distribution of the tax burden between producers and consumers. This, in turn, affects market prices and welfare.</p> Signup and view all the answers

<p>Tax incidence serves as a crucial input in policy evaluation by providing insights into the distributional effects and efficiency of tax policies. It helps policymakers understand how taxes affect market outcomes and social welfare.</p> Signup and view all the answers

<p>Tax salience effects can influence consumer behavior and perception of prices, leading to changes in demand elasticity and market equilibrium. These effects can impact the distribution of the tax burden between producers and consumers.</p> Signup and view all the answers

<p>Partial equilibrium incidence in tax analysis focuses on analyzing the impact of taxes on specific goods while holding other factors constant.</p> Signup and view all the answers

<p>Graphical examples are used to visually represent how taxes impact supply, demand, and equilibrium prices in a market.</p> Signup and view all the answers

<p>The formula for tax incidence is dq/dp * εS = 1 + εD. It is derived by implicitly differentiating the equilibrium condition in tax analysis.</p> Signup and view all the answers

<p>The effect of a tax on price is characterized by dp/dt, which represents the change in price due to the imposition of a tax.</p> Signup and view all the answers

<p>Salience effects refer to how the visibility or prominence of a tax influences consumer behavior and their perception of the tax burden.</p> Signup and view all the answers

<p>Perfect competition assumes that firms are price-taking, which means they cannot influence the market price of goods.</p> Signup and view all the answers

<p>The price elasticity of demand (εD) indicates how responsive consumers are to price changes, affecting the tax burden sharing.</p> Signup and view all the answers

<p>The price elasticity of supply (εS) shows how sensitive producers are to price changes, influencing the tax burden distribution.</p> Signup and view all the answers

<p>The equilibrium condition states that the quantity demanded must equal the quantity supplied after accounting for taxes, determining the market price.</p> Signup and view all the answers

<p>The goal is to characterize the effect of a tax on price (dp/dt) and understand how taxes are distributed between consumers and producers.</p> Signup and view all the answers

<p>A pass-through rate of 0.7 implies a supply elasticity in the range of 0.1 - 0.6.</p> Signup and view all the answers

<p>A higher pass-through rate indicates a lower supply elasticity, while a lower pass-through rate suggests a higher supply elasticity.</p> Signup and view all the answers

<p>Salience effects in tax incidence studies refer to how the visibility or prominence of a tax influences its impact on consumer behavior.</p> Signup and view all the answers

<p>Salience effects influence consumer behavior by affecting how noticeable or prominent a tax is, thereby influencing consumer decision-making.</p> Signup and view all the answers

<p>Scanner data from different areas allows for a comparison of how food stamps affect pricing in locations with varying levels of poverty, providing insights into pricing behavior.</p> Signup and view all the answers

<p>The timing variation allows researchers to investigate if there is a change in demand at the beginning of the month, potentially violating the permanent income hypothesis.</p> Signup and view all the answers

<p>The elasticity of demand range indicates that consumers are relatively unresponsive to price changes, with a decrease in quantity demanded not proportionate to price increases.</p> Signup and view all the answers

<p>A pass-through rate of 0.7 implies a supply elasticity between 0.1 and 0.6, reflecting how much of a tax decrease is passed on to consumers in the form of lower prices.</p> Signup and view all the answers

<p>A pass-through rate of 0.7 suggests that 70% of a tax decrease is reflected in lower prices for consumers, indicating how much they benefit from the tax reduction.</p> Signup and view all the answers

<p>The difference-in-difference approach allows for a comparison of pricing changes post-tax repeal in different states, providing insights into the relative incidence of the tax policy changes.</p> Signup and view all the answers