Tax Reform and Welfare Measurement

Do We Need Demand System Estimation

Datos Bibliográficos

ID9718151
AutoresJames Banks (0000-0002-9726-8921, Institute for Fiscal Studies), Richard Blundell (0000-0003-1588-2299, UCL Australia), Arthur Lewbel (0000-0003-3864-2618, Institute for Fiscal Studies)
Año1996
Volumen106
Número438
Páginas1227
Fecha de publicación1996-09-01
Peer ReviewedSí
Open AccessNo
TipoARTICLE
RevistaThe Economic Journal (JOURNAL)
Identificadores de la revistaISSN: 0013-0133 • E-ISSN: 1468-0297
EditorialOxford University Press (OUP) (PUBLISHER)
DOI10.2307/2235517
OpenAlexW3021225169
IdiomaEN
Citas recibidas10

The exact measurement of the welfare costs of tax and price reform requires a detailed knowledge of individual preferences. Typically, first order approximations of welfare costs are calculated avoiding detailed knowledge of substitution effects. We drive second order approximations which, unlike first order approximations, require knowledge of the distribution of substitution elasticities. This paper asks to what extent simple approximations can be used to measure the welfare costs of tax reform and evaluates the magnitude of the biases for a plausible size tax reform. In our empirical examples first order approximations display systematic biases; second order approximations always work well

Deadweight loss · Distribution (mathematics · Econometrics · Economics · Empirical measure · Estimation · Measure (data warehouse · Microeconomics · Order (exchange · Public economics · Simple (philosophy · Statistics · Substitution (logic · Tax reform · Welfare · Work (physics · Computer Science · Fiscal Policy and Economic Growth · Gender, Labor, and Family Dynamics · Mathematics · Politics, Economics, and Education Policy