The Economic Impacts of Tax–Transfer Policy. Regional and by Fredrick L. Golladay

By Fredrick L. Golladay

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Tax-transfer policy: Conceptual issues 21 previous m o d u l e . A detailed characterization of p r o d u c t i o n by sector a n d r e g i o n is m a i n t a i n e d t o p e r m i t a n a l y s i s o f s p a t i a l e f f e c t s as w e l l as of i m p a c t s o n p a r t i c u l a r m a r k e t s . In p r i n c i p l e , analysis of a d j u s t m e n t s to i n c r e a s e d d e m a n d for particular c o m m o d i t i e s involves m i n i m i z i n g t h e costs of p r o d u c t i o n , g i v e n prices of inputs a n d a p r o d u c t i o n f u n c t i o n .

T h e first m e t h o d o f e s t i m a t i n g e x p e n d i t u r e s a s s u m e s that c h a n g e s in c u r r e n t i n c o m e in a n y g i v e n y e a r f r o m tax liabilities or t r a n s f e r r e c e i p t s m o t i v a t e c h a n g e s in c o n s u m p t i o n e x p e n d i t u r e s i n t h a t year. Marginal e x p e n d i t u r e propensities and marginal budget shares are estimated f r o m cross-sectional e x p e n d i t u r e m o d e l s applied to s u r v e y data o n h o u s e h o l d e x p e n d i t u r e s .

H o w e v e r , t h e duration o f a n e v e n t of u n - e m p l o y m e n t is d e t e r m i n e d s e p a r a t e l y . D u r a t i o n o f u n e m p l o y m e n t , i n w e e k s , is a s s i g n e d s t o c h a s t i c a l l y t o e a c h m e m b e r of t h e l a b o r f o r c e ; t h e underlying probabilities are specified to be conditional u p o n sex and age, w i t h t h e n e w e n t r a n t to t h e labor f o r c e b e i n g in a distinct " a g e " g r o u p . Each w o r k e r ' s e a r n i n g s a r e d e c r e a s e d by t h e p r o d u c t of n o r m a l weekly earnings (from the CPS) and weeks unemployed.

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