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Demographic behavior and the welfare state

Econometric issues in the identification of the effects of tax and transfer programs


The evaluation of the effects of tax and transfer programs on demographic behavior raises a number of difficult econometric issues related to identification of program effects. The main issue concerns whether there exists the true exogenous variation in program parameters necessary to estimate the effects of the program on behavior. This paper provides a discussion of the types of exogenous variation that are commonly available as well as the pitfalls in using potentially endogenous sources of variation. The general points are illustrated with an example drawn from the demographic literature in the United States. The paper concludes with a recommendation that the source of exogenous variation in program parameters be carefully examined in any study undertaken.

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Presented at the Second Annual Conference of the European Society for Population Economics, University of Mannheim, June 23–25, 1988. The author would like to thank the participants of the conference for their comments and, in particular, Bjorn Gustafsson, Siv Gustafsson, and Denis Kessler for their information on Swedish and French tax and transfer programs. Joseph Hotz also provided useful comments.

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Moffitt, R. Demographic behavior and the welfare state. J Popul Econ 1, 237–250 (1989).

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  • General Point
  • Welfare State
  • Main Issue
  • Exogenous Variation
  • Program Effect