General Equilibrium

and Welfare

PowerPoint Slides prepared by:

Andreea CHIRITESCU
Eastern Illinois University
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 Perfectly Competitive Price System
• Assume that all markets are perfectly
competitive
– There is some large number of
homogeneous goods in the economy
– Each good has an equilibrium price
– There are no transaction or transportation
costs
– Individuals and firms have perfect
information
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 Law of One Price
• A homogeneous good
– Trades at the same price no matter who
buys it or who sells it
• If one good traded at two different prices
– Demanders would rush to buy the good
where it was cheaper
– And firms would try to sell their output
where the price was higher
• These actions would tend to equalize the
price of the good
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 Behavioral Assumptions
1. There are a large number of people
buying any one good
– Each person takes all prices as given and
seeks to maximize utility given his budget
constraint
2. There are a large number of firms
producing each good
– Each firm takes all prices as given and
attempts to maximize profits

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 General Equilibrium
• Assumptions
– There are only two goods, x and y
– All individuals have identical preferences
• Represented by an indifference map
• Production possibility curve
– Can be used to show how outputs and
inputs are related

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 Edgeworth Box Diagram
• Production possibility curve for x and y
– Amounts of k and l are fixed
• An Edgeworth box
– Shows every possible way the existing k
and l might be used to produce x and y
– Any point in the box represents a fully
employed allocation of the available
resources to x and y

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 13.1
Construction of an Edgeworth Box Diagram for Production

The dimensions of this diagram are given by the total quantities of labor and capital
available. Quantities of these resources devoted to x production are measured from origin
Ox; quantities devoted to y are measured from Oy. Any point in the box represents a fully
employed allocation of the available resources to the two goods.
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 Edgeworth Box Diagram
• Many allocations in the Edgeworth box
– Are technically inefficient
• It is possible to produce more x and more y
by shifting capital and labor around
• Assume: competitive markets will not
exhibit inefficient input choices
• We want to find the efficient allocations
– They illustrate the actual production
outcomes
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 Edgeworth Box Diagram
• Isoquant maps for the two goods
– The isoquant map for good x uses Ox as
the origin
– The isoquant map for good y uses Oy as
the origin
• Efficient allocations
– Will occur where the isoquants are
tangent to one another

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 13.2
Edgeworth Box Diagram of Efficiency in Production

This diagram adds production isoquants for x and y to Figure 13.1. It then shows technically
efficient ways to allocate the fixed amounts of k and l between the production of the two
outputs. The line joining Ox and Oy is the locus of these efficient points. Along this line, the
RTS (of l for k) in the production of good x is equal to the RTS in the production of y.
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 Production Possibility Frontier
• The locus of efficient points
– Shows the maximum output of y that can
be produced for any level of x
– Use this information to construct a
production possibility frontier
• Shows the alternative outputs of x and y that
can be produced with the fixed capital and
labor inputs that are employed efficiently

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 13.3
Production Possibility Frontier
Quantity of y

Ox P1
y4 P2
y3
A P3
y2

P4
y1

Quantity of x
x1 x2 x3 x4 Oy
The production possibility frontier shows the alternative combinations of x and y that can be
efficiently produced by a firm with fixed resources. The curve can be derived from Figure 13.2 by
varying inputs between the production of x and y while maintaining the conditions for efficiency.
The negative of the slope of the production possibility curve is called the rate of product
transformation (RPT).
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 Rate of Product Transformation
• Rate of product transformation (RPT)
between two outputs
– The negative of the slope of the
production possibility frontier
slope of production 
RPT (of x for y ) = −  
 possibility frontier 
dy
RPT (of x for y ) = − (along OxOy )
dx
• Shows how x can be technically traded for y
• While continuing to keep the available
productive inputs efficiently employed
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 Shape of the Production
Possibility Frontier
• Production possibility frontier
– Exhibits an increasing RPT
– This concave shape will characterize most
production situations
– Costs of any output combination: C(x,y)
• Along the production possibility frontier,
C(x,y) is constant
– Total differential of the cost function as
dy Cx MCx
RPT = − =− =−
dx C ( x , y )−C =0 Cy MC y
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 Shape of the Production
Possibility Frontier
• Production possibility frontier
• Along the production possibility frontier,
C(x,y) is constant. 1 unit of labor to produce x
and 2 for produce y. Then C(x,y)=x+2y
• MCx=1, MCy=2

dy Cx MCx
RPT = − =− =−
dx C ( x , y )−C =0 Cy MC y

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 Shape of the Production
Possibility Frontier
• If x and y - diminishing returns
• As production of x rises and production of y
falls, the ratio of MCx to MCy rises
– Increasing the production of x raises MCx
– Reducing the production of y lowers MCy

• Concave shape of the production

possibilities curve
• Some inputs - more suited for x production
than for y production
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 Differing Factor Intensities
• Production possibility frontier - concave
– If goods x and y use inputs in different
proportions
– Even if inputs are homogeneous and
production functions exhibit constant
returns to scale

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 Opportunity Cost
• Production possibility frontier
– Demonstrates that there are many
possible efficient combinations of two
goods
• Opportunity cost
– Producing more of one good necessitates
lowering the production of the other good

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 Opportunity Cost
• The opportunity cost of one more unit of x
– Is the reduction in y that this entails
– Best measured as the RPT (of x for y)
• At the prevailing point on the production
possibility frontier
• Rises as more x is produced

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 13.1 Concavity of the Production Possibility
Frontier
• Production of x and y
• Depends only on labor
• Production functions: x = f (l x ) = l 0.5
x ; y = f (l y ) = l 0.5
y

• Total labor supply = 100, lx + ly = 100

• The production possibility frontier:
x2 + y2 = 100 for x,y  0
• The RPT can be calculated:
dy  fx  2x x
RPT = − = −  −  = =
dx  f  2y y
 y
• Concave
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 13.1 Concavity of the Production Possibility
Frontier
• Two goods are produced under constant
returns to scale: 0.75

x = f (k , l ) = k x0.5lx0.5 and y = g (k , l ) = k y0.25l y0.25

• Total labor and capital are constrained:
kx + ky = 100, and lx + ly = 100
kx 3k y
RTS x = =  x and RTS y = = 3 y
lx ly
where  i = ki / li
On the production possibility frontier:
RTS x = RTS y or  x = 3 y
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 13.1 Concavity of the Production Possibility
Frontier
• Capital-labor ratios:
kx + k y
=  x +(1- ) y = 1
lx + l y
where  = lx / (lx + l y )
Input ratios:
1 3
y = and  x =
1 + 2 1 + 2

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 13.1 Concavity of the Production Possibility
Frontier
• Production possibility frontier in terms of the
share of labor devoted to x production:
0.5
 3 
x = l =   (100) = 100 
0.5 0.5

 1 + 2 
x x x

0.25
 1 
y = 0.25
l = 0.25
(1 −  )(100) = 100(1 −  )  
 1 + 2 
y y y

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 Determination of Equilibrium Prices
• Determination of equilibrium prices
– From the production possibility frontier
along with a set of indifference curves
• The indifference curves
– Represent individuals’ preferences for the
two goods

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 13.14
Determination of Equilibrium Prices
Quantity of y C* − px*
slope =
C
py*

P
y1

y*
E
y1’
U3
U2 C
− px
U1 slope =
py
P C*
Quantity of x
x1 x* x1’
With a price ratio given by px/py, firms will produce x1, y1; society’s budget constraint will be given by
line C. With this budget constraint, individuals demand x’ 1 and y’1; that is, there is an excess demand
for good x and an excess supply of good y. The workings of the market will move these prices toward
their equilibrium levels p*x , p*y . At those prices, society’s budget constraint will be given by line C,
and supply and demand will be in equilibrium. The combination x*, y* of goods will be chosen.
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 Comparative Statics Analysis
• The equilibrium price ratio
– Will tend to persist until either preferences
or production technologies change
• If preferences were to shift toward good x
– px /py would rise
– And more x and less y would be produced
– Move in a clockwise direction along the
production possibility frontier

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 Comparative Statics Analysis
• Technical progress in the production of
good x
– Will shift the production possibility curve
outward
– This will lower the relative price of x
– More x will be consumed
• If x is a normal good
– The effect on y is ambiguous

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 13.5
Effects of Technical Progress in x Production

Quantity of y

y1 E1
y0
E0
U1

U0

Quantity of x
x0 x1

Technical advances that lower marginal costs of x production will shift the production possibility
frontier. This will generally create income and substitution effects that cause the quantity of x
produced to increase (assuming x is a normal good). Effects on the production of y are
ambiguous because income and substitution effects work in opposite directions.
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 13.2 Comparative Statics in a General
Equilibrium Model

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 13.2 Comparative Statics in a General
Equilibrium Model

x = f (lx ) = lx0.5 ; y = f (l y ) = l y0.5

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 13.2 Comparative Statics in a General
Equilibrium Model
• A shift in supply
• Technical improvement in x production
• New production function, x = 2lx0.5
• Production possibility frontier: x2/4+y2=100
• RPT = x/4y
• Equilibrium: x*=2(50)0.5 , y*=(50)0.5 px/py = 1/2

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 13.2 Comparative Statics in a General
Equilibrium Model
• A shift in demand
• Consumer preferences were to switch to favor
good y , U(x,y)=x0.1y0.9
• Demand functions: x = 0.1I/px ; y = 0.9I/py
• Equilibrium: x*=(10)0.5 , y*=3(10)0.5 px/py = 1/3

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 The Corn Laws Debate
• High tariffs on grain imports
– Imposed by the British government after
the Napoleonic wars
• Economists debated the effects of these
“corn laws” between 1829 and 1845
– What effect would the elimination of these
tariffs have on factor prices?

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 13.6
Analysis of the Corn Laws Debate
Quantity of − px*
manufactured slope =
py*
goods (y)

yA A
yE E B
yB
− px '
U2 slope =
U1 py '

Quantity of Grain (x)

xA xE xB

Reduction of tariff barriers on grain would cause production to be reallocated from point E to
point A; consumption would be reallocated from E to B. If grain production is relatively (Land)
capital intensive, the relative price of capital would decrease as a result of these
reallocations.
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 The Corn Laws Debate
• Use an Edgeworth box diagram
– To see the effects of tariff reduction on the
use of labor and capital
• If the corn laws were repealed
– An increase in the production of
manufactured goods
– A decline in the production of grain
– Harmful to capital (land) owners
– Helpful to laborers
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 Political Support for Trade Policies
• Trade policies
– May affect the relative incomes of various
factors of production
• In the U.S.
– Exports tend to be intensive in their use of
skilled labor
– Imports tend to be intensive in their use of
unskilled labor

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 A Mathematical Model of Exchange
• A vector
– An ordered array of variables
• Which each may take on specific values
• Convention
– The vectors we use are column vectors

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 A Mathematical Model of Exchange
• Model of exchange
– n goods and m individuals
– Each individual gains utility from the
vector of goods he or she consumes,
ui(xi) where i = 1. . .m
– Individuals are price-takers
• Face a price vector (p) that specifies the
market price for each of the n goods
– Individuals also possess initial
endowments of the goods x i

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 A Mathematical Model of Exchange
• Model of exchange
– Each individual seeks to maximize utility
– Each individual is bound by a budget
constraint
• Total amount spent on consumption = Total
value of his or her endowment
px = px i
i

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 A Mathematical Model of Exchange
• Set of n individual demand functions
– One for each good
– In which quantities demanded depend on
all prices and income
– Continuous
– Homogeneous of degree 0 in all prices
and income
i
x ( p, px i )
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 Equilibrium and Walras’ Law
• Equilibrium
– Total quantities of each good demanded =
Total endowment of each good available
• Walrasian equilibrium
– Is an allocation of resources and an
associated price vector, p*, such that
m m

 x i

i =1
( p*, p * x i
) =  x i

i =1

• Where the summation is taken over the m

individuals in this exchange economy
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 Equilibrium and Walras’ Law
• Walrasian equilibrium
– In equilibrium demand equals supply in
each market
• Walras’ law m m m

 px =  px
i =1
i

i =1
i
or  p (
i =1
x −x i
)=0i

– Holds at the individual Level thus at the aggregate level.

The value of all quantities demanded must equal the
value of all endowments. If n-1 markets have excess
demands zero, then the other one has that too. We only
need n-1 equations. Hence, one price is numeraire.

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 Existence of equilibrium
in the exchange model
• An arbitrary set of n non-negative prices
p1, p2 . . . pn
– Normalize these to form a new set of
prices
pi
p 'i = n
, with the properties:
pk =1
k

n
p 'i pi /  pk pi
 p'
k =1
k = 1 and = =
p ' j p j /  pk p j

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 Existence of equilibrium
in the exchange model
• Assume
– The price vectors we use (p) have all been
normalized
• Proving the existence of equilibrium
prices
– Showing that there will always exist a
price vector p that achieves equilibrium in
all markets

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 Existence of equilibrium
in the exchange model
• Existence of equilibrium prices
m m

 x (
i =1
p*, p i
* x i
) =  , or
x i

i =1
m m

 x i

i =1
( p*, p * x i
) −  = 0 , or z ( p*) = 0
x i

i =1

– z(p) - shorthand way of recording the

‘‘excess demands’’ for goods at a
particular set of prices
• In equilibrium, excess demand is zero in all
markets
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 Existence of equilibrium
in the exchange model
• Brouwer’s fixed point theorem
– Any continuous function from a closed
compact set onto itself (set of normalized
prices are so)
• In the present case, from the ‘‘unit simplex’’
onto itself
– Will have a ‘‘fixed point’’ such that x=f(x)

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 13.7
A Graphical Illustration of Brouwer’s Fixed Point Theorem

Normalizados (P1,p2). Puedo agarrar P1

Y sólo fijarme en el exceso de demanda de
Solo uno de los mercados. Como se cumple
Ley de Walras si el exceso de demanda es
Cero en un mercado en el otro también.

Because any continuous function must cross the 45 line somewhere in the unit
square, this function must have a point for which f (x*) = x*. This point is called a
fixed point.
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 Existence of equilibrium
in the exchange model
• New set of prices,
• 𝑝1 =f(𝑝0 )=(𝑝0 + 𝑘𝑧(𝑝0 ))/(σ𝑛𝑖=1 𝑝0𝑖 +kz(𝑝0 )𝑖 )
• p0 =(𝑝01 , … , 𝑝0𝑛 ) arbitrary set of prices
• k – positive constant
– Continuous function
– Will map one set of normalized prices into
another
– Meet the conditions of the Brouwer’s fixed
point theorem for p*=f(p*), where z(p*)=0
– P* is a fixed point, the equilibrium price.
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 Existence of equilibrium
in the exchange model
• The Walras proof
– Uses a number of assumptions about
economic behavior
• Price-taking by all parties
• Homogeneity of demand functions
• Continuity of demand functions
• Presence of budget constraints and Walras’
law

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 First Theorem of Welfare Economics
• Pareto efficient allocation
– An allocation of the available goods in an
exchange economy is efficient. If it is not
possible to devise an alternative allocation
in which at least one person is better off
and no one is worse off
• First theorem of welfare economics
– Every Walrasian equilibrium is Pareto
efficient

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 13.8
The First Theorem of Welfare Economics

With initial endowments at point E, individuals trade along the price line PP until
they reach point E*. This equilibrium is Pareto efficient.
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Second Theorem of Welfare Economics
• The second theorem of welfare
economics
– For any Pareto optimal allocation of
resources
– There exists a set of initial endowments
and a related price vector
– Such that this allocation is also a
Walrasian equilibrium

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 13.9
The Second Theorem of Welfare Economics

If allocation Q* is regarded as socially optimal, this allocation can be supported by

any initial endowments on the price line P’P’. To move from E to, say, Q would
require transfers of initial endowments.
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 13.3 A Two-Person Exchange Economy
• A simple two-person, two-good exchange
economy
• Total quantities of the goods are fixed:
x = y = 1,000
• Utility functions:
UA(xA,yA) = xA2/3 yA1/3 and UB(xB,yB) = xB1/3 yB2/3
• Lagrangian expression
ℒ (xA,yA) = UA(xA,yA) +λ[UB(1,000-xA,1,000-yA)-ŪB]
ℒ (xA,yA) = xA2/3 yA1/3+λ[(1,000-xA)1/3(1,000-yA)2/3-ŪB]

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 13.3 A Two-Person Exchange Economy
• First order conditions:
1/3 2/3
L 2  y A    1, 000 − y A 
=   −   =0
x A 3  x A  3  1, 000 − x A 
2/3 1/3
L 1  x A  2  1, 000 − xA 
=   −   =0
y A 3  y A  3  1, 000 − y A 
• We get:
xA 4 yA
=
1, 000 − x A 1, 000 − y A
This equation allows us to identify all the Pareto optimal
allocations in this exchange economy. Ya(Xa), contract
curve. A point in it implied by Xa=Xb=500.
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 13.3 A Two-Person Exchange Economy
• Equilibrium price ratio
• We need to know the marginal rate of
substitution
U A / xA yA
MRS A = =2 = 0.8
U A / y A xA
U B / xB yB
MRS B = = 0.5 = 0.8
U B / yB xB

• Therefore px/py = 0.8

• Can illustrate first and second welfare theorem.

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 Social Welfare Functions
• Social welfare function
– Is a hypothetical scheme for ranking
potential allocations of resources based
on the utility they provide to individuals
Social welfare = SW[U1(x1), U2(x2), …, Um(xm)]
– Choose allocations of goods among the m
individuals in the economy in a way that
maximizes SW

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 Social Welfare Functions
• For the social welfare function:
U1R U 2R U mR
SW (U1 , U 2 , , U m ) = + + ... + , R 1
R R R

• For R=1: SW(U1, U2,…,Um) = U1+U2+…+Um

– Utilitarian function
– Social welfare is judged by the aggregate
sum of utility with no regard for how utility
is distributed among the members of
society
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 Social Welfare Functions
• For R= - ∞:
SW(U1, U2,…,Um) =Min[U1, U2,…,Um]
– Maximin function
– Focuses on the worse-off person in any
allocation and chooses that allocation for
which this person has the highest utility

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 A Mathematical Model of
Production and Exchange
• “Goods”
– Includes factors of production
• Whose prices also will be determined within
the general equilibrium model
• Labor supply
– Individuals are endowed with a certain
number of potential labor hours
• Work or leisure
• Maximize utility

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 A Mathematical Model of
Production and Exchange
• Firms (r ) involved in production
– Bound by a production function
– Convention
• Outputs of the firm take a positive sign
• Inputs take a negative sign
– Each firm’s production plan
• An n x 1 column vector, yj (j = 1 . . . r), which
contains both positive and negative entries
– Maximize profits
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 A Mathematical Model of
Production and Exchange
• Production functions
– Assumed to be sufficiently convex to
ensure a unique profit maximum for any
set of output and input prices
• Profits:
 j ( p) = py j if  j ( p)  0 and
y j = 0 if  j ( p)  0

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 A Mathematical Model of
Production and Exchange
– Each individual owns a predefined
m
share,
si, of the profits of all firms  si = 1
i =1

– Each individual’s budget constraint

r
pxi = si  py + px
i
j
i = 1...m
j =1
m r m
Over all individuals: p  xi ( p) = p  y j ( p) + p  x i
i =1 j =1 i =1

Let x( p) =  xi ( p), y( p) =  y j ( p), x =  x i

Walras' law: px( p) = py ( p) + px
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 A Mathematical Model of
Production and Exchange
• Walrasian equilibrium price vector (p*)
– A set of prices at which demand equals
supply in all markets simultaneously
x( p*) = y( p*) + x
• Excess demand functions
z ( p) = x ( p) – y ( p) − x
– Are homogeneous of degree 0 in prices
• Any price vector for which z(p*) = 0 will also
have the property that z(tp*) = 0 and t > 0
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 A Mathematical Model of
Production and Exchange
• Welfare economics in the Walrasian
model with production
– Feasible allocations of resources
• Any point on the production possibility frontier
– The first theorem of welfare economics
continues to hold
• The general social welfare implications - are
far from clear

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 13.10
Production Increases the Number of Feasible Allocations

Any point on the production possibility frontier PP can serve as the dimensions of
an Edgeworth exchange box.
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 Computable General Equilibrium Models
• Two advances - rapid development of
general equilibrium models in recent
years
– The theory has been generalized to
include many features of real-world
economies
– Expanding computer capacity has made it
possible to study more complex models

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 Structure of General Equilibrium Models
• Specification of general equilibrium
models
– Starts by defining the number of goods to
be included in the model
– The goal of the model:
• To solve for the equilibrium prices for these
goods and how they may change when
conditions change

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 Structure of General Equilibrium Models
• The technology of firms
– Specified by production functions
• Demand
– Specified by defining utility functions for
various households
• The model
– Must also specify how the government
operates

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 Solving General Equilibrium Models
• Model - solved for equilibrium prices and
quantities
– Finding the solution may be difficult
– Models are generally solved on a
computer using an algorithm developed by
Scarf in the 1970s

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 Economic Insights from
General Equilibrium Models
• All prices are endogenous in economic
models
– Exogenous elements are preferences and
productive technologies
• All firms and productive inputs are owned
by households
– All income ultimately accrues to
households

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 Economic Insights from
General Equilibrium Models
• Any model with a government sector
– Is incomplete if it does not specify how tax
receipts are used
• The “bottom line” in any policy evaluation
– Is the utility of households
– Firms and governments are only
intermediaries in this accounting

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 Economic Insights from
General Equilibrium Models
• All taxes distort economic decisions along
some dimension
– The welfare costs of the distortions must
be weighed against the benefits of such
taxes

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 13.4 A Simple General Equilibrium Model
• Assume:
• Two households, two consumer goods (x and y),
and two inputs (k and l)
• Households
• Each has an endowment of k and l
• Obtain utility from consuming x, y, and leisure (lr)
• Simple Cobb-Douglas utility functions

U1 = x y l ; 0.5 0.3 0.2

1 1 r1 U2 = x y l 0.4 0.4 0.2
2 2 r2

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 13.4 A Simple General Equilibrium Model
• Production of x and y
• Cobb-Douglas technologies
x=k l ; 0.2 0.8
x x y=k l 0.8 0.2
y y
• Initial endowments
k 1 = 40 l1 = 24
k 2 = 40 l 2 = 24
• Model without government
• Solution will be four equilibrium prices

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 13.4 A Simple General Equilibrium Model
• Price normalization scheme
px + p y + pk + pl = 1
• Solving for these prices yields
px = 0.363; py = 0.253; pk = 0.136; pl = 0.248
• Total production: x = 23.7; y = 25.1
• Utility-maximizing choices for household 1:
x1 = 15.7; y1 = 8.1; lr = 9.2; U1 = 13.5
• Utility-maximizing choices for household 2:
x1 = 8.1; y1 = 11.6; lr = 5.9; U1 = 8.75

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 13.5 The Excess Burden of a Tax
• The government
• Imposes an ad valorem tax of 0.4 on good x
• Wedge between what demanders pay for this
good x (px)
• And what suppliers receive for the good (p’x =
(1 – t)px = 0.6px)
• Revenues generated by this tax
• Rebated to the households in a 50–50 split
• New equilibrium prices
px = 0.472; py = 0.218; pk = 0.121; pl = 0.188

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 13.5 The Excess Burden of a Tax
• Total production: x = 17.9; y = 28.8
• Allocation of resources has shifted significantly
toward y production
• Utility-maximizing choices for household 1:
x1 = 11.6; y1 = 15.2; lr = 11.8; U1 = 12.7
• Worse off
• Utility-maximizing choices for household 2:
x1 = 6.3; y1 = 13.6; lr = 7.9; U1 = 8.96
• Better off

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 Computable general equilibrium models
• General methodology - Computable
general equilibrium (CGE) models
– Assume various forms for production and
utility functions
– Choose particular parameters of those
functions based on empirical evidence
– Generate general equilibrium solutions
• Then compare with real-world data

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 Computable general equilibrium models
• General methodology - Computable
general equilibrium (CGE) models
– ‘‘Calibrate’’ the models to reflect reality
– Vary various policy elements in the
models
• Provide general equilibrium estimates of the
overall impact of those policy changes

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 Trade models
• The impact of trade barriers
– Necessary to introduce a large degree of
product differentiation into individuals’
utility functions
– Incorporate increasing returns-to-scale
technologies into their production sectors
• Capture one of the primary advantages of
trade for smaller economies
• Impact of the North American Free Trade
Agreement (NAFTA)
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 Tax and transfer models
• Evaluate potential changes in a nation’s
tax and transfer policies
– Considerable care must be taken in
modeling the factor supply side
• The Dutch Micro Macro Model to Analyze
the Institutional Context (MIMIC0 model

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 Environmental models
• Understanding the ways in which
environmental policies may affect the
economy
– Production of pollutants - major side effect
of the other economic activities
– Specify environmental goals in terms of a
given reduction in these pollutants
• Economic costs of various strategies
– Study the impact of environmental policies
on income distribution
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 Environmental models
• Assessing CO2 reduction strategies
– The General Equilibrium Environmental
(GREEN) model
• Developed by the Organization for Economic
Co-operation and Development (OECD)

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 Regional and urban models
• To examine economic issues that have
important spatial dimensions
– Widely used to examine the local impact
of major changes in government spending
policies

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