The Impact of Economic Shifts: From Micro-Elasticities to Distributional Welfare Effects

Economies routinely experience shifts in supply, demand, and policy at aggregate and sectoral
levels. We present a unified analytical framework to assess the distributional welfare effects
of these shifts. Our model integrates supply and demand heterogeneity without imposing
specific functional forms on production or consumption. We identify key micro-elasticities of
consumer preferences and sectoral production functions that determine, in general equilibrium,
the distributional welfare impacts of such shifts. In doing so, we pinpoint the mechanisms
impacting welfare and the conditions under which each mechanism is operative. Finally, we
estimate the model and quantify the heterogeneous welfare impacts of these shifts. pdf