Document Type

Article

Date

7-1-2002

Embargo Period

12-6-2011

Keywords

tbd

Disciplines

Economics

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.

Additional Information

This manuscript is from the Social Science Research Network, for more information see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1808888#193443

Source

Harvested from ssrn.com

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

Included in

Economics Commons

Share

COinS