Dynamic Analysis, Welfare, and Implications for Tax Reform
From: The White House
Jason Furman, Chairman, Council of Economic Advisers
National Bureau of Economic Research Tax Policy and the Economy Conference
Washington, DC | September 22, 2016
The Contrast Between Regulatory Analysis and Dynamic Analysis
Before getting to tax policy, I want to start with regulatory policy, which is one area where practitioners do welfare analysis in a conceptually correct way when deciding between alternative policies. Consider, for example, a decision about whether or not to promulgate a regulation that would require factories to install a piece of equipment that would prevent local pollution. One approach to this decision is cost-benefit analysis: do the benefits of the policy change (in this case, the number of lives saved by reduced pollution multiplied by the value of a statistical life) exceed its costs (in this case, the cost of installing the equipment multiplied by the number of factories that would have to install it)? An alternative approach would be to judge the policy based on the net impact of the regulation on jobs (or output), including the additional jobs (or output) created installing the pollution-reducing equipment less the jobs (or output) lost as a result of the higher production costs.