In the introduction we provided intuition on the meaning of an MVPF estimate. In this brief tutorial we explain how the MVPF can be used to compare the efficacy of different policies.
We begin with a simple example. Imagine that a government has decided to spend money on a new proposal. They are deciding between decreasing tax rates on the high earners or funding a job training program for young adults.
So, which of these policies should the government implement? The tax cut or the job training program?
That depends. The MVPF doesn’t tell us which policy to implement, it tells us about the tradeoffs between policies.
The value of the MVPF is that it frames this tradeoff. It allows us to compare two very programs and weigh the relative value of each.
This previous example has demonstrated how the MVPF can be used to decide between two different types of spending.
The logic of the MVPF can also be applied to identify efficient ways for the government to raise revenue. This idea is best illustrated with a real-world example.
We begin by examining the MVPF of each provision
The key here is that, once again, the MVPF does not take a stand on whether the government should engage in redistribution. Rather it helps simplify that debate by quantifying the tradeoffs associated with such redistribution. It is then up to society to decide if that tradeoff is worthwhile.