Public Economics Lectures Part 1: Introduction

Evans, Ringel, and Stech: Demand Elasticity
Demand model estimate implies that: ε D = −0.42
→ 10% increase in price induces a 4.2% reduction in consumption
Tax passed 1-1 onto consumers, so we can compute ε D from ˆβ in
demand model:
ε D = P Q
∆Q
∆T = ˆβ/(∆T /P)
taking P and Q average values in the data
Can substitute ∆P = ∆T here because of 1-1 pass through
Public Economics Lectures () Part 2: Tax Incidence 55 / 142