Econometric Analysis and Public Policy: The Case of Fiscal Need Assessment

Abstract

Politics is the art of the possible. Policy analysis would not be of much use if it were. Editors are not keen on works that conclude: this policy is about as good a compromise as one could expect in the circumstances, and opposition critics positively hate reports that say, considering the program is trying to do three different things at once, some considerable inefficiency and confusion should be expected. This creates a problem for a paper like Anwar Shah's A Fiscal NeedApproach to Equalization (1996) which attempts to extend economic analysis into policy prescription. The problem is more than usually acute when the policies in question involve merit goods, like health, education, and welfare. Unfortunately, these make up the bulk of provincial-local expenditure and are the now common rationale for equalization.