Uncertain Parameter Values and the Choice Among Policy Options

14 Pages Posted: 5 Jul 2004 Last revised: 17 Jul 2010

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Andrew B. Lyon

PricewaterhouseCoopers LLP

Date Written: April 1983

Abstract

In this paper, we use tax policy choices to illustrate and investigate the more general problem of using uncertain parameter values in models to evaluate policy choices. We show, for this tax example, how debate on an elasticity parameter translates into a debate about policy choices, andvice versa. To construct this example, we suppose that the choice among four particular tax reform options is based on a single measure of efficiency gain. We show how this gain from each reform depends upon the elasticity of saving with respect to the net rate of return. Within quite narrow and reasonable bounds for the elasticity parameter, we find regions in which each of three different tax reforms turns out to dominate the others.

Suggested Citation

Fullerton, Don and Lyon, Andrew B., Uncertain Parameter Values and the Choice Among Policy Options (April 1983). NBER Working Paper No. w1111. Available at SSRN: https://ssrn.com/abstract=304832

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Andrew B. Lyon

PricewaterhouseCoopers LLP ( email )

600 13th Street, NW, Suite 1000
Washington, DC 20005
United States
202-414-3865 (Phone)

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