korvausvaikutus

Korvausvaikutus is a Finnish term used mainly in economics and public policy to describe the compensating or offsetting effect produced by transfers, subsidies, or other compensatory measures following a change in conditions. It refers to the extent to which a payment, tax adjustment, regulation, or damage compensation mitigates the welfare or monetary impact of the change on individuals or groups.

In policy analysis, korvausvaikutus is used to assess how much of a policy’s negative effects are offset by compensatory mechanisms. For example, when a price increase or tax reform affects households, accompanying transfers or subsidies can reduce the overall welfare loss. The concept also encompasses behavioral responses, such as households substituting affected goods with alternatives, thereby dampening the policy’s intended impact.

Measurement typically involves comparing welfare or outcomes with and without compensation, or evaluating observed results against counterfactual scenarios. In microeconomic terms, the korvausvaikutus relates to, but is not identical to, standard price and income effects, and to related concepts in cost-benefit analysis such as compensating variation.

Limitations and considerations include the accuracy and equity of compensation, liquidity constraints, and the possibility that some indirect or long-term effects are not fully offset. The term highlights how design choices in taxation, regulation, or social policy can influence the real-world effectiveness of interventions.

Etymology: korvaus (compensation) + vaikutus (effect). The concept appears in Finnish-language literature and policy discussions to describe offsetting or mitigating effects of compensatory measures.