Chapter 3

Question 1

Empirical Public Finance

Answer 1

The use of data and statistical methods to measure the impact of government policy on individuals and markets.

Question 2

Correlated

Answer 2

Two economic variables are correlated if they move together.

Question 3

Causal

Answer 3

Two economic variables are causally related if the movement of one causes movement of the other.

Question 4

Randomized Trial

Answer 4

The ideal type of experiment designed to test causality, whereby a group of individuals is randomly divided into a treatment group, which receives the treatment of interest, and a control group, which does not.

Question 5

Treatment Group

Answer 5

The set of individuals who are subject to an intervention being studied.

Question 6

Control Group

Answer 6

The set of individuals comparable to the treatment group who are not subject to the intervention being studied.

Question 7

Bias

Answer 7

Any source of difference between treatment and control groups that is correlated with the treatment but is not due to the treatment.

Question 8

Attrition

Answer 8

Reduction in the size of samples over time, which, if not random, can lead to biased estimates.

Question 9

Observational Data

Answer 9

Data generated by individual behavior observed in the real world, not in the context of deliberately designed experiments.

Question 10

Time Series Analysis

Answer 10

Analysis of the comovement of two series over time.

Question 11

Cross-sectional Regression Analysis

Answer 11

Statistical analysis of the relationship between two or more variable exhibited by many individuals at one point in time.

Question 12

Regression Line

Answer 12

The line that measures the best linear approximation to the relationship between any two variables.

Question 13

Control Variables

Answer 13

Variables that are included in cross-sectional regression models to account for differences between treatment and control groups that can lead to bias.

Question 14

Quasi-experiments

Answer 14

Changes in the economic environment that create nearly identical treatment and control groups for studying the effect of that environmental change, allowing public finance economists to take advantage of randomization created by external forces.

Question 15

Difference-in-difference Estimator

Answer 15

The difference between the changes in outcomes for the treatment group that experiences an intervention and the control group that does not.

Question 16

Structural Estimates

Answer 16

Estimates of the features that drive individual decisions, such as income and substitution effects or utility parameters.

Question 17

Reduced Form Estimates

Answer 17

Measures of the total impact of an independent variable on a dependent variable, without decomposing the source of that behavior response in terms of underlying utility functions.