Sufficient Statistics Revisited

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 primi...

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Bibliographic Details
Published in:Annual review of economics 2021-01, Vol.13 (1), p.515-538
Main Author: Kleven, Henrik J
Format: Article
Language:English
Subjects:
discrete reforms
elasticities
fiscal externality
JEL D04
JEL D10
JEL D60
JEL H20
JEL H30
Policy analysis
Public policy
Statistics
structural approach
sufficient statistics
welfare analysis
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Summary: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.
ISSN:1941-1383
1941-1391
DOI:10.1146/annurev-economics-060220-023547