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.
Document Type
Working Paper
Date
2001
Keywords
design of experiments, empirical analysis, public policy analysis, political endogeneity
Language
English
Series
Working Papers Series
Disciplines
Public Policy
Recommended Citation
Kubik, Jeffrey D. and Moran, John R., "Can Policy Changes Be Treated as Natural Experiments? Evidence from State Excise Taxes" (2001). Center for Policy Research. 118.
https://surface.syr.edu/cpr/118
Source
Metadata from RePEc
Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.
Additional Information
Harvest from RePEc at http://repec.org