Analysing tax-benefit reforms with nonparametric methods
AbstractStatic tax-benefit microsimulation models (MSM) are widely used and reputed tools for public policy analysis but a more than careful use of them is compelling. This paper focuses on the analysis of MSM output, suggesting to use nonparametric kernel methods rather than most often used histograms for the analysis of income distributions, and nonparametric regressions in place of histograms by income deciles for identifying gainers and losers. Although slightly less intuitive, nonparametric methods are robust and can be easily tested. A robust and testable analysis of MSM output is crucial as MSM are often used also for tax-benefit policy design. A MSM is used for the analysis of 1998 Italian personal income tax reform. Although not a radical reform, nonparametric methods allowed for detection of the role of the tax system for the emergence of bimodality of disposable income distribution, dramatically different impact depending on some family types, differential impact of losses and gains at different levels of income, and a more robust understanding of the main components of the reform.
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Bibliographic InfoPaper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2008-27.
Date of creation: 14 Jul 2008
Date of revision:
Tax-benefit microsimulation model; tax reform; nonparametric regression; kernel density on bounded support;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-17 (All new papers)
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