2 - Empirical tools of Public Econ Flashcards

1
Q

empirical public finance

A

statistical methods to measure the impact of gov policies on individuals and markets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

correlation

A

2 variables co move

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

difference between causation and correlation

A
  • either A causes B
  • B causes A
  • 3rd aspect that causes A and B
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

causation

A

the movement of 1 variable causes the movement of another variable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what is an experiment used to test causality

A

randomised trial

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is a randomised trial

A

individuals randomly divided into treatment group and control group
- estimating the effects of something on something else

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

how is bias fixed

A
  • large sample = eliminate differences between groups ‘law of large numbers’
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

problems with randomised trials

A
  1. external validity
  2. attrition
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what is external validity

A

results are valid for the sample - but the sample is different from the population - doesnt apply to population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is attrition

A

individuals leave the experiment before the end
- reduced size of sample
- biased estimates - not true to population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what are the 3 types of observational data

A
  • observational data
  • time series analysis = analysis over time
  • cross sectional regression analysis = analysis of many individuals at one point in time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what are the problems with time series analysis

A
  1. cant tell if correlation is causation
  2. other factors may cause bias and effect causal interpretation = another variable that is also correlated with the DV
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what is the regression line

A

measures best linear approximation to the relationship between any 2 variables
- if B is statistically significant = there is a relationship

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

problems with cross sectional regression analysis

A
  • is the correlation causal?
  • another variable that is effecting X = in the e = so bias - fix by adding more control variables
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what are Quasi experiments
what does it test

A

natural experiments without randomisation
- treatment group
- control group
- outcome Y

tests the difference in average outcome between treatment and control after the change - but because T and C maybe different before the change you have to also compute difference before

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is the difference in difference estimator for quasi experiments
- what does it measure
- what is parallel trend assumption

A

DD = [Yta - Yca] - [Ytb - Ycb]
- does the difference between treatment and control change after the policy

  • requires parallel trend assumption = without the change difference between T and C would have stayed the same
17
Q

what does DD require (GRAPH)

A

parallel trend assumption

18
Q

problems with quasi experiments

A
  • cant be certain to get rid of bias from the treatment-control comparison
  • parallel trend assumption
19
Q

ways to validify quasi experiments

A
  • need to be certain that the change after the policy happened because of the policy = way to validify
  • test on another control group as placebo
  • plot on a time series and see what happens
20
Q

what are the best ways to test for causal relationship between policy and outcome

A
  1. best = randomised trial - removes bias by randomly assigning T and C
  2. time series analysis
  3. cross-sectional regression analysis
  4. quasi experimental analysis
21
Q

what is elasticity of demand

A

the percentage change in demand caused by a 1% change in the price of that good

22
Q

what is perfectly inelastic and elastic

A
  • elastic = quantity demanded is extremely sensitive to price changes –> e = - infinity –> horizontal
  • inelastic = quantity demanded does not change at all in respect to price changes –> e = 0 –> vertical
23
Q

Consumer surplus

A

the price they pay is less than the price theyre willing to pay

24
Q

producer surplus

A

difference between the amount willing to supply goods for and the actual amount received

25
Q

what is the first welfare theorem

A

markets yield pareto efficient outcome if:
- no externalities
- perfect competition
- perfect information
- rational agents

26
Q

what is the second welfare theorem

A

SW can be optimised at an equilibrium given a suitable redistribution of the endowments

27
Q

what are different kinds of SWF functions

A
  1. utilitarian
    - utilities given equal weight
    - redistributive - if MU decreases the richer you get
  2. rawlsian
    - SW determined by minimum utility in society
    - very redistributive
  3. libertarian
    - individuals should receive compensation congruent with their contributions
  4. commodity egalitarianism
    - basic needs are met for society
  5. equality of opportunity
    - all individuals have equal opportunities for success - should be compensated for inequalities that they arent responsible for