Direct impact analysis is a simple assessment of the groups directly affected by a policy change, and the ways they are affected. It assumes no behavioral response from affected households or groups. If prices change, for example, the analysis assumes that quantities purchased do not. All elasticities, including own-price elasticities, are assumed to be zero. This assumption is appropriate for assessing short-term reform impacts, before economic agents have time to make adjustments. It tends to overstate the impact on household welfare.
The approach can be used to analyze any type of policy change, such as a change in prices, or in public finance policy, but it is best suited to reforms whose impacts dominate in the short term, such as the removal of a subsidy. Of the tools available in the box to the right, benefit incidence analysis and poverty mapping are commonly used tools that employ this approach. QSDS and PETS track the direct incidence of public spending at various levels of the economy. Back to Tools and Methods for PSIA |
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