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The Role of Wealth Transformations: An Application to Estimating the Effect of Tax Incentives on Saving

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  • Pence Karen M.

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    (Federal Reserve Board of Governors)

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    Abstract

    Researchers may want to estimate the percentage change of a variable, such as household wealth or corporate profits, that takes on economically significant nonpositive values. Using the logarithmic transformation, however, requires discarding observations with nonpositive values. This paper describes a possible solution to this problem-the inverse hyperbolic sine transformation-and shows how to implement this transformation optimally in the case of median regression. As an illustration of the usefulness of this transformation, I revisit a specification sometimes used to estimate the effect of tax incentives on household saving.

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    File URL: http://www.degruyter.com/view/j/bejeap.2005.5.issue-1/bejeap.2006.5.1.1430/bejeap.2006.5.1.1430.xml?format=INT
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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

    Volume (Year): 5 (2006)
    Issue (Month): 1 (July)
    Pages: 1-26

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    Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:20

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/bejeap

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    Cited by:
    1. Gene Amromin, 2008. "Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 5-41 National Bureau of Economic Research, Inc.
    2. El-Osta, Hisham S., 2011. "The Impact of Human Capital on Farm Operator Household Income," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(1), April.
    3. Christelis, Dimitris & Georgarakos, Dimitris, 2013. "Investing at home and abroad: Different costs, different people?," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2069-2086.
    4. Stefan Hochguertel & Henry Ohlsson, 2000. "Compensatory inter vivos gifts," Economics Working Paper Archive wp_319, Levy Economics Institute.
    5. Pierre-Louis Vezina & Lorenzo Rotunno & Zheng Wang, 2012. "The rise and fall of (Chinese) African apparel exports," Economics Series Working Papers WPS/2012-12, University of Oxford, Department of Economics.
    6. Kukielka, Jessica B. & Johnston, Robert J. & Duke, Joshua M., 2008. "Systematic Variation in Willingness to Pay for Agricultural Land Preservation and Implications for Benefit Transfer: A Meta-Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6121, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Carboni, Oliviero A., 2012. "An empirical investigation of the determinants of R&D cooperation: An application of the inverse hyperbolic sine transformation," Research in Economics, Elsevier, vol. 66(2), pages 131-141.

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