Welfare Analysis Meets Causal Inference


Finkelstein, Amy, and Nathaniel Hendren. 2020. “Welfare Analysis Meets Causal Inference.” Journal of Economic Perspectives 34 (4): 146-167.
Paper731 KB

Date Published:

September, 2020


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.


NBER Working Paper #27640

Last updated on 05/29/2021