Evaluating the Poverty and Distributional Impact of Economic Policies (Techniques and Tools)

The tools for policy evaluation and analysis reviewed in the preceding chapters are all ex-post, as they essentially compare the distribution of welfare over a population before and after a given policy or a given local program is implemented. While ex-post evaluation is essential for assessing the true impacts of existing policies and programs, there are many instances in which policymakers would value the ability to simulate ex-ante the effects of alternative reforms in existing policies and programs, or indeed the introduction of entirely new ones. This chapter examines the scope for ex -ante evaluation techniques relying on the estimation and simulation of structural econometric models of household behavior. The archetypical example of such techniques is the modeling of the labor supply effect of tax-benefit systems in developed countries and the simulation of reforms in those systems. The development of conditional transfer policies presently observed in developing countries is likely to make these behavioral microsimulation techniques increasingly relevant there too.