1932

Abstract

This article 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 of 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.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-060220-023547
2021-08-05
2024-06-25
Loading full text...

Full text loading...

/deliver/fulltext/economics/13/1/annurev-economics-060220-023547.html?itemId=/content/journals/10.1146/annurev-economics-060220-023547&mimeType=html&fmt=ahah

Literature Cited

  1. Allcott H, Lockwood BB, Taubinsky D. 2019. Regressive sin taxes, with an application to the optimal soda tax. Q. J. Econ. 134:1557–626
    [Google Scholar]
  2. Allcott H, Mullainathan S, Taubinsky D. 2014. Energy policy with externalities and internalities. J. Public Econ. 112:72–88
    [Google Scholar]
  3. Allcott H, Taubinsky D. 2015. Evaluating behaviorally motivated policy: experimental evidence from the lightbulb market. Am. Econ. Rev. 105:2501–38
    [Google Scholar]
  4. Baily MN. 1978. Some aspects of optimal unemployment insurance. J. Public Econ. 10:379–402
    [Google Scholar]
  5. Becker GS. 1965. A theory of the allocation of time. Econ. J. 75:493–517
    [Google Scholar]
  6. Browning EK. 1976. The marginal cost of public funds. J. Political Econ. 84:283–98
    [Google Scholar]
  7. Browning EK. 1987. On the marginal welfare cost of taxation. Am. Econ. Rev. 77:11–23
    [Google Scholar]
  8. Chetty R. 2006. A general formula for the optimal level of social insurance. J. Public Econ. 90:1879–901
    [Google Scholar]
  9. Chetty R. 2008. Moral hazard versus liquidity and optimal unemployment insurance. J. Political Econ. 116:173–234
    [Google Scholar]
  10. Chetty R. 2009a. Is the taxable income elasticity sufficient to calculate deadweight loss? The implications of evasion and avoidance. Am. Econ. J. Econ. Policy 1:31–52
    [Google Scholar]
  11. Chetty R. 2009b. Sufficient statistics for welfare analysis: a bridge between structural and reduced-form methods. Annu. Rev. Econ. 1:451–88
    [Google Scholar]
  12. Chetty R, Finkelstein A 2013. Social insurance: connecting theory to data. Handbook of Public Economics 5 AJ Auerbach, R Chetty, MS Feldstein, E Saez 111–93 Amsterdam: Elsevier
    [Google Scholar]
  13. Corlett WJ, Hague DC. 1953–1954. Complementarity and the excess burden of taxation. Rev. Econ. Stud. 21:21–30
    [Google Scholar]
  14. Currie J, Kleven HJ, Zwiers E. 2020. Technology and big data are changing economics: mining text to track methods. AEA Pap. Proc. 110:42–48
    [Google Scholar]
  15. Diamond PA. 1998. Optimal income taxation: an example with a U-shaped pattern of optimal marginal tax rates. Am. Econ. Rev. 88:83–95
    [Google Scholar]
  16. Diamond PA, Mirrlees JA. 1971. Optimal taxation and public production II: tax rules. Am. Econ. Rev. 61:261–78
    [Google Scholar]
  17. Donaldson D. 2018. Railroads of the Raj: estimating the impact of transportation infrastructure. Am. Econ. Rev. 108:899–934
    [Google Scholar]
  18. Dupuit J. 1952 (1844. On the measurement of the utility of public works. Int. Econ. Pap. 2:83–110
    [Google Scholar]
  19. Eissa N, Kleven HJ, Kreiner CT 2006. Welfare effects of tax reform and labor supply at the intensive and extensive margins. Tax Policy and Labour Market Performance J Agell, PB Sørensen 147–85 Cambridge, MA: MIT Press
    [Google Scholar]
  20. Eissa N, Kleven HJ, Kreiner CT. 2008. Evaluation of four tax reforms in the United States: labor supply and welfare effects for single mothers. J. Public Econ. 92:795–816
    [Google Scholar]
  21. Farhi E, Gabaix X. 2020. Optimal taxation with behavioral agents. Am. Econ. Rev. 110:298–336
    [Google Scholar]
  22. Feldstein M. 1995. The effect of marginal tax rates on taxable income: a panel study of the 1986 Tax Reform Act. J. Political Econ. 103:551–72
    [Google Scholar]
  23. Feldstein M. 1999. Tax avoidance and the deadweight loss of the income tax. Rev. Econ. Stat. 81:674–80
    [Google Scholar]
  24. Finkelstein A, Notowidigdo MJ. 2019. Take-up and targeting: experimental evidence from SNAP. Q. J. Econ. 134:1505–56
    [Google Scholar]
  25. Goulder LH, Williams RC. 2003. The substantial bias from ignoring general equilibrium effects in estimating excess burden, and a practical solution. J. Political Econ. 111:898–927
    [Google Scholar]
  26. Harberger AC. 1964. The measurement of waste. Am. Econ. Rev. 54:58–76
    [Google Scholar]
  27. Hendren N. 2016. The policy elasticity. Tax Policy Econ. 30:51–89
    [Google Scholar]
  28. Hines JR. 1999. Three sides of Harberger triangles. J. Econ. Perspect. 13:167–88
    [Google Scholar]
  29. Hotelling H. 1938. The general welfare in relation to problems of taxation and of railway and utility rates. Econometrica 6:242–69
    [Google Scholar]
  30. Jakobsen K, Jakobsen K, Kleven HJ, Zucman G. 2020. Wealth taxation and wealth accumulation: theory and evidence from Denmark. Q. J. Econ. 135:329–88
    [Google Scholar]
  31. Kleven HJ. 2004. Optimum taxation and the allocation of time. J. Public Econ. 88:545–57
    [Google Scholar]
  32. Kleven HJ. 2016. Bunching. Annu. Rev. Econ. 8:435–64
    [Google Scholar]
  33. Kleven HJ. 2020. The EITC and the extensive margin: a reappraisal NBER Work. Pap. 26405
    [Google Scholar]
  34. Kleven HJ, Kreiner CT. 2002. The taxation of married couples in OECD countries: a need for reform? EPRU Work. Pap. 2002-13 Econ. Policy Res. Unit, Univ Copenhagen, Den:.
    [Google Scholar]
  35. Kleven HJ, Kreiner CT. 2005. Labor supply behavior and the design of tax and transfer policy. Dan. J. Econ. 143:321–58
    [Google Scholar]
  36. Kleven HJ, Kreiner CT. 2006. The marginal cost of public funds: hours of work versus labor force participation. J. Public Econ. 90:1955–73
    [Google Scholar]
  37. Kolsrud J, Landais C, Nilsson P, Spinnewijn J. 2018. The optimal timing of unemployment benefits: theory and evidence from Sweden. Am. Econ. Rev. 108:985–1033
    [Google Scholar]
  38. Michaillat P, Saez E. 2019. Optimal public expenditure with inefficient unemployment. Rev. Econ. Stud. 86:1301–31
    [Google Scholar]
  39. Piketty T, Saez E 2013. Optimal labor income taxation. Handbook of Public Economics 5 AJ Auerbach, R Chetty, MS Feldstein, E Saez 391–474 Amsterdam: Elsevier
    [Google Scholar]
  40. Piketty T, Saez E, Stantcheva S. 2014. Optimal taxation of top labor incomes: a tale of three elasticities. Am. Econ. J. Econ. Policy 6:230–71
    [Google Scholar]
  41. Ramsey FP. 1927. A contribution to the theory of taxation. Econ. J. 37:47–61
    [Google Scholar]
  42. Saez E. 2001. Using elasticities to derive optimal income tax rates. Rev. Econ. Stud. 68:205–29
    [Google Scholar]
  43. Saez E. 2004. Reported incomes and marginal tax rates, 1960–2000: evidence and policy implications. Tax Policy Econ. 18:117–73
    [Google Scholar]
  44. Saez E. 2010. Do taxpayers bunch at kink points?. Am. Econ. J. Econ. Policy 2:180–212
    [Google Scholar]
  45. Saez E, Slemrod J, Giertz SH. 2012. The elasticity of taxable income with respect to marginal tax rates: a critical review. J. Econ. Lit. 50:3–50
    [Google Scholar]
  46. Sandmo A. 1975. Optimal taxation in the presence of externalities. Swed. J. Econ. 77:86–98
    [Google Scholar]
  47. Slemrod J, Yitzhaki S. 1996. The costs of taxation and the marginal efficiency cost of funds. IMF Staff Pap. 43:172–98
    [Google Scholar]
  48. Slemrod J, Yitzhaki S. 2001. Integrating expenditure and tax decisions: the marginal cost of funds and the marginal benefit of projects. Natl. Tax J. 54:189–201
    [Google Scholar]
/content/journals/10.1146/annurev-economics-060220-023547
Loading
/content/journals/10.1146/annurev-economics-060220-023547
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error