Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Welfare Analysis Meets Causal Inference
Journal of Economic Perspectives
(pp. 146–67)
(Complimentary)
Abstract
We describe a framework for empirical welfare analysis that uses the causal estimates of a policy's impact on net government spending. This framework provides guidance for which causal effects are (and are not) needed for empirical welfare analysis of public policies. The key ingredient is the construction of each policy's marginal value of public funds (MVPF). The MVPF is the ratio of beneficiaries' willingness to pay for the policy to the net cost to the government. We discuss how the MVPF relates to "traditional" welfare analysis tools such as the marginal excess burden and marginal cost of public funds. We show how the MVPF can be used in practice by applying it to several canonical empirical applications from public finance, labor, development, trade, and industrial organization.Citation
Finkelstein, Amy, and Nathaniel Hendren. 2020. "Welfare Analysis Meets Causal Inference." Journal of Economic Perspectives 34 (4): 146–67. DOI: 10.1257/jep.34.4.146Additional Materials
JEL Classification
- D60 Welfare Economics: General
- H43 Project Evaluation; Social Discount Rate
- H50 National Government Expenditures and Related Policies: General