Jonathan Parker, Nicholas S Souleles, Aaron Goodman, 04 February 2018

The most accurate way to determine how people respond to an economic policy is to observe how they did in fact respond to that policy, but this approach is not always possible. This column uses a 2008 tax rebate in the US to compare the traditional revealed preference approach and a reported preference approach where people are simply asked how they would, or did, behave. The results suggest that reported spending data are valuable in predicting behaviour and in estimating population aggregates, but are not sufficiently accurate to provide reliable quantitative measurements of household-level spending responses.

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