Econ 130: Using Economics for Public Policy - Comprehensive Course Flashcards

Comprehensive vocabulary flashcards covering the economic frameworks, empirical econometric methods, public finance, social safety net programs, labor market policies, and health economics from Economics 130.

Bardach's Eight-fold Method

A systematic framework for public policy analysis comprising eight steps: (1) Define the problem, (2) Assemble the evidence, (3) Construct alternatives, (4) Select criteria, (5) Project outcomes, (6) Confront trade-offs, (7) Decide, and (8) Tell your story.

Positive Economics vs. Normative Economics

Positive economics analyzes objective facts and cause-and-effect relationships describing how the world actually works ("how things are"), whereas normative economics involves value judgments regarding desirable social outcomes and policy prescriptions ("how things should be").

Tax Exporting

A fiscal mechanism in which the economic burden of local municipal fees, fines, or taxes is shifted to non-residents who use local infrastructure, such as when $58\%$ of automated speed camera citations in Oakland were mailed to vehicle owners outside the city.

Public Goods

Goods defined by two essential economic properties: non-rivalry (one person's consumption does not reduce availability for others) and non-excludability (individuals cannot be prevented from consuming the good), which leads to underprovision in private markets due to free riding.

Mandatory Spending

Federal government entitlement expenditures whose funding levels are determined automatically by statutory eligibility criteria and formulas (such as Social Security, Medicare, and Medicaid) rather than being appropriated annually by Congress.

Discretionary Spending

Federal budget outlays that Congress authorizes and sets explicitly each year through discretionary appropriations bills, including expenditures for national defense, education, and transportation.

Primary Deficit

The federal government's budget deficit in a given fiscal year excluding net interest payments made on the outstanding national public debt.

Capital Market Crowd-Out

The macroeconomic phenomenon where large, sustained government borrowing absorbs private loanable funds, thereby increasing interest rates and reducing private capital investment.

Deadweight Loss (Excess Burden)

The loss of total economic welfare (consumer and producer surplus) caused by a market distortion such as a tax, which drives a wedge between the price paid by consumers and the price received by producers, scaling with the square of the tax rate.

Economic Incidence vs. Statutory Incidence

Statutory incidence defines the party legally required to pay a tax to the government, whereas economic incidence identifies who ultimately bears the actual burden through changes in equilibrium prices, determined by the relative price elasticities of supply and demand.

Progressive Tax

A tax structure in which the effective tax rate (the share of income paid in taxes) increases as pre-tax income rises, causing after-tax income to be more equally distributed than pre-tax income.

Regressive Tax

A tax structure where the proportion of income paid in taxes declines as income increases, often seen in excise and sales taxes that consume a larger fraction of poorer households' budgets.

Laffer Curve

A graphical representation showing tax revenue as a function of the tax rate, illustrating that revenue rises with tax rates up to an optimal revenue-maximizing rate ($\tau^*$), beyond which higher rates reduce tax revenues due to behavioral supply contractions.

Tax Expenditures

Revenue losses incurred by the government as a result of provisions in the tax code allowing exclusions, deductions, deferrals, or preferential tax credits, which effectively operate as public spending delivered through the tax system.

Proposition 30 (California, 2012)

A California tax ballot initiative that increased state income tax progressivity by adding higher marginal tax rates for incomes over $"\$250{,}000"$ (raising top marginal rates up to $13.3\%$ for single filers), boosting tax revenues while increasing state revenue volatility.

Counterfactual

The hypothetical state of the world describing what outcome would have materialized for an observational unit in the absence of receiving an intervention, the unobservability of which constitutes the fundamental problem of causal inference.

Average Treatment Effect (ATE)

The expected value of the individual treatment effect across an entire population, defined as $E[Y_i(1) - Y_i(0)]$.

Selection Bias

The baseline difference in average potential non-treatment outcomes between those who receive a treatment and those who do not, represented formally as $E[Y_i(0) \mid D_i=1] - E[Y_i(0) \mid D_i=0]$.

Differences-in-Differences (DiD)

A quasi-experimental empirical strategy that identifies causal effects by subtracting the before-and-after change in an untreated control group from the before-and-after change in a treated group: $\text{DiD} = [Y_{\text{after}}^{T} - Y_{\text{before}}^{T}] - [Y_{\text{after}}^{C} - Y_{\text{before}}^{C}]$.

Parallel Trends Assumption

The identifying assumption underlying Differences-in-Differences estimation stating that, in the absence of treatment, average outcomes for the treatment and control groups would have followed parallel trajectories over time.

Stable Unit Treatment Value Assumption (SUTVA)

An identification assumption in causal inference requiring that a treatment is uniform across units and that the potential outcomes for any given unit are independent of the treatment assignment received by other units (no interference or spillovers).

Conditional Expectation Function (CEF)

A mathematical relationship, denoted $E[Y_i \mid X_i = x]$, showing how the population mean of outcome $Y_i$ varies as a function of the conditioning variable $X_i$, which Ordinary Least Squares (OLS) linearly approximates.

Omitted Variable Bias (OVB)

The statistical bias that arises in a regression parameter estimate when the model fails to include an omitted variable that is simultaneously correlated with the explanatory variable of interest and causally determines the outcome.

Sharp Regression Discontinuity (SRD)

A quasi-experimental method that estimates causal treatment effects near a threshold by exploiting an assignment mechanism where the probability of receiving treatment jumps deterministically from $0$ to $1$ at a specific cut-off value of a continuous running variable.

Fuzzy Regression Discontinuity (FRD)

A regression discontinuity design where crossing the cut-off threshold produces a discontinuous jump in the probability of treatment take-up rather than deterministic assignment, estimated as the ratio of the jump in outcome to the jump in treatment take-up.

Exclusion Restriction

The identifying assumption in Instrumental Variables (IV) estimation stating that the instrument ($Z_i$) affects the outcome variable ($Y_i$) solely through its effect on the endogenous explanatory variable ($X_i$), having no direct causal link or correlation with unobserved error terms.

Local Average Treatment Effect (LATE)

The causal effect estimated by instrumental variables or fuzzy regression discontinuity designs that applies specifically to 'compliers'—the subpopulation induced into taking treatment exclusively by the instrument or threshold.

Synthetic Control Method

A comparative case-study method that estimates the counterfactual trajectory of a single treated unit by constructing an optimal weighted combination of untreated donor units matched on pre-intervention outcomes and predictors.

Gini Coefficient

A statistical index of inequality bounded between $0$ (perfect equality, where all individuals possess equal income) and $1$ (perfect inequality, where one individual captures all income).

Skill-Biased Technical Change (SBTC)

A shift in production technology and automation that increases the relative labor demand and productivity of highly skilled, college-educated workers, driving wage polarization and the college wage premium.

The Great Gatsby Curve

The cross-national empirical relationship demonstrating that countries with higher cross-sectional income inequality (higher Gini coefficients) experience lower intergenerational economic mobility (higher intergenerational income persistence).

Binned Scatter Plot (Binscatter)

A non-parametric visualization tool that splits sample observations into equal-sized bins along an independent variable ($X$) and plots the conditional sample mean of the outcome ($Y$) against the mean of $X$ for each bin.

Rank-Rank Slope

The regression slope measuring the association between a child's percentile rank in the national adult income distribution and their parents' percentile rank, which measures relative intergenerational mobility ($0.341$ in the United States).

Media Checklist for Economic Research

The criteria highlighted by journalist Matt Levin that reporters seek when deciding whether to cover academic research: timely relevance to current news, counterintuitive findings, identifiable human characters, clean/unambiguous empirical results, and accessible communication without academic jargon.

Commuting Zone (CZ)

A geographic cluster of counties grouped based on commuting patterns to reflect an integrated local economic labor market, designed to cover the entire continental and non-continental United States.

Absolute Upward Mobility ((\bar{r}_{25}))

An upward mobility index developed by Chetty et al. defined as the expected adult percentile rank in the national income distribution for a child born to parents at the $25\text{th}$ percentile of household income.

Childhood Exposure Effect

The empirical finding from Chetty and Hendren's movers design demonstrating that the causal benefit of moving to a higher-opportunity neighborhood accumulates linearly with each year of childhood spent there, with zero marginal effect for moves occurring after age 23.

Place-Based Policies

Public policies, infrastructure investments, and tax incentives targeted at geographically defined distressed communities or regions to stimulate local economic activity, employment, and living standards.

Agglomeration Economies

Productivity gains, cost reductions, and efficiency spillovers that firms and workers realize from clustering close together in concentrated geographic areas or industrial hubs.

Knowledge Spillovers

Positive technological and human capital externalities whereby the concentration of highly educated or specialized workers increases the learning, productivity, and wages of other nearby workers.

Capitalization of Place-Based Subsidies

The economic tendency for area-specific public subsidies or investments to be absorbed into increased local land and property values when housing supply is inelastic, enriching property owners while potentially raising costs for incumbent renters.

Moving to Opportunity (MTO) Experiment

A randomized HUD housing voucher experiment that moved families out of high-poverty public housing; it generated no adult employment or earnings impacts, but led to large, significant adult earnings gains for children who moved before age 13.

Supplemental Poverty Measure (SPM)

A poverty measure established in 2011 that accounts for necessary expenses like regional housing costs, childcare, and out-of-pocket medical expenses, while adding non-cash public benefits (SNAP, housing subsidies) and refundable tax credits to family income.

Iron Triangle of Welfare

The fundamental policy tradeoff in means-tested transfer design stating that a government cannot simultaneously achieve all three goals: (1) guaranteeing a high living standard ($G$), (2) maintaining low benefit phase-out tax rates ($T$) to encourage work, and (3) minimizing government budgetary costs.

Earned Income Tax Credit (EITC)

A refundable federal tax credit for low-to-moderate-income working families featuring a trapezoidal structure (phase-in, plateau, phase-out) that conditions benefits on positive earnings, incentivizing labor force participation.

Inframarginal Transfer

An in-kind public transfer provided in an amount less than or equal to what a household would have consumed in the absence of the program, which economic theory indicates is treated identically to cash without distorting consumption choices.

Universal Basic Income (UBI)

A social welfare model that provides recurring, unconditional cash payments (not in-kind) of a sufficient size to cover basic living needs, distributed universally to all individuals regardless of income, assets, or employment status.

Unemployment Insurance Replacement Rate

The percentage of a worker's prior weekly earnings that is replaced by state unemployment insurance benefits during an unemployment spell, generally ranging between $35\%$ and $55\%$ across U.S. states.

Experience Rating

The financing mechanism for state Unemployment Insurance programs under which the state payroll tax rate assessed on a firm increases based on the volume of UI claims filed by its previously laid-off employees.

Minimum Wage Wage-Distribution Bunching

An empirical method developed by Cengiz et al. (2019) that assesses minimum wage impacts by comparing the excess jobs observed at or slightly above a new statutory wage floor ($\Delta a$) with the missing jobs below that wage floor ($\Delta b$) in the wage distribution.

Price Pass-Through of the Minimum Wage

An economic adjustment mechanism in imperfectly competitive product markets wherein employers offset mandatory labor cost increases from a minimum wage hike by increasing output prices for consumers rather than laying off workers.

Oregon Health Insurance Experiment (OHIE)

A landmark randomized lottery study of Medicaid expansion in Oregon that demonstrated increased healthcare utilization, improved mental health, and reduced catastrophic out-of-pocket financial distress, but no statistically significant short-run improvements in clinical physical health metrics.

Adverse Selection

An asymmetric information failure occurring prior to an insurance transaction wherein individuals with unobserved high health risks or expected costs disproportionately enroll in insurance, driving up plan costs and average premiums.

Insurance Death Spiral

A market unravelling process where rising insurance premiums drive healthier, low-risk individuals to drop coverage, further increasing the average per-capita costs of the remaining pool and forcing continuous price hikes until the market collapses.

Flat of the Curve Medicine

Healthcare utilization in a region where additional medical expenditures yield near-zero marginal health benefits, representing allocative inefficiency and clinical overuse often driven by fee-for-service reimbursement incentives.

Deaths of Despair

A demographic term formulated by Anne Case and Angus Deaton referring to midlife mortality surges among non-college-educated individuals driven primarily by drug overdoses, suicides, and alcohol-related liver disease.

Algorithmic Bias in Healthcare

Systemic bias in predictive clinical algorithms, as identified by Obermeyer et al. (2019), arising when healthcare costs are used as a proxy for healthcare needs, causing Black patients to receive lower risk scores than equally ill white patients due to unequal access and spending disparities.