Document Type

Working Paper

Date

2001

Embargo Period

6-28-2012

Keywords

design of experiments, empirical analysis, public policy analysis, political endogeneity

Language

English

Disciplines

Public Policy

Description/Abstract

An important issue in public policy analysis is the potential endogeneity of the policies under study. If policy changes constitute responses on the part of political decision-makers to changes in a variable of interest, then standard analyses that treat policy changes as natural experiments may yield biased estimates of the impact of the policy (Besley and Case 2000). We examine the extent to which such political endogeneity biases conventional fixed effects estimates of behavioral parameters by identifying the elasticities of demand for cigarettes and beer using the timing of state legislative elections as an instrument for changes in state excise taxes. In both cases, we find sizable differences between these estimated demand elasticities and the fixed effect estimates cited in Evans, Ringel, and Stech (1999). We conclude that the use of fixed effects estimators in environments where policy interventions are endogenously determined may lead to large biases in the estimated effects of the policies. This paper was revised July 2002.

Additional Information

Harvest from RePEc at http://repec.org

Source

Metadata from RePEc

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