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Econometric Issues in Estimating the Behavioral Response to Taxation: A Nontechnical Introduction

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  • Triest, Robert K.

Abstract

Reliable estimates of how tax incentives affect behavior are an essential input into the formation of tax policy. However, one encounters a number of difficult econometric problems in estimating the magnitude of the behavioral effects. This paper provides a nontechnical introduction to some of the more prominent problems, particularly the endogeneity of marginal tax rates and the problem of identifying tax effects, and discusses two estimation techniques used in recent studies: difference-in-differences and instrumental variables using panel data.

Suggested Citation

  • Triest, Robert K., 1998. "Econometric Issues in Estimating the Behavioral Response to Taxation: A Nontechnical Introduction," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(4), pages 761-772, December.
  • Handle: RePEc:ntj:journl:v:51:y:1998:i:4:p:761-72
    DOI: 10.1086/NTJ41789367
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    2. Karel Mertens & José Luis Montiel Olea, 2018. "Marginal Tax Rates and Income: New Time Series Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 133(4), pages 1803-1884.
    3. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, June.
    4. Saarimaa, Tuukka, 2005. "Taxation and Debt Financing of Home Acquisition: Evidence from the Finnish 1993 Tax Reform," Discussion Papers 366, VATT Institute for Economic Research.
    5. Sung-Hee Jeon, 2004. "The impacts of the 1988 tax reform on married women's labour supply in Canada," Department of Economics Working Papers 2004-19, McMaster University.
    6. Parry, Ian W.H., 1999. "Tax Deductions, Consumption Distortions, and the Marginal Excess Burden of Taxation," Discussion Papers 10801, Resources for the Future.
    7. Lauren M. Rich & Sun-Bin Kim, 2001. "Taxes and Unmarried Fathers' Participation in the Underground Economy," Working Papers 970, Princeton University, School of Public and International Affairs, Center for Research on Child Wellbeing..
    8. Kovak Brian K., 2011. "Overestimating the Effect of Complementarity on Skill Demand," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-25, October.
    9. Bittschi, Benjamin & Borgloh, Sarah & Wigger, Berthold, 2015. "Secularization, tax policy and prosocial behavior," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113065, Verein für Socialpolitik / German Economic Association.
    10. Benjamin Bittschi & Sarah Borgloh & Berthold U. Wigger, 2020. "Philanthropy in a Secular Society," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(4), pages 640-664.
    11. Ian Parry, 2002. "Tax Deductions and the Marginal Welfare Cost of Taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 9(5), pages 531-552, September.
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    13. Adena, Maja, 2014. "Tax-price elasticity of charitable donations: Evidence from the German taxpayer panel," Discussion Papers, Research Unit: Economics of Change SP II 2014-302, WZB Berlin Social Science Center.
    14. Kumar, Anil & Liang, Che-Yuan, 2020. "Estimating taxable income responses with elasticity heterogeneity," Journal of Public Economics, Elsevier, vol. 188(C).
    15. Scharf, Kimberley, 2010. "Public Funding of Charities and Competitive Charity Selection," CEPR Discussion Papers 7937, C.E.P.R. Discussion Papers.
    16. Bittschi, Benjamin & Borgloh, Sarah & Moessinger, Marc-Daniel, 2016. "On tax evasion, entrepreneurial generosity and fungible assets," ZEW Discussion Papers 16-024, ZEW - Leibniz Centre for European Economic Research.
    17. Smith, James L., 2014. "A parsimonious model of tax avoidance and distortions in petroleum exploration and development," Energy Economics, Elsevier, vol. 43(C), pages 140-157.
    18. Smith, James L., 2013. "Issues in extractive resource taxation: A review of research methods and models," Resources Policy, Elsevier, vol. 38(3), pages 320-331.
    19. Bönke, Timm & Werdt, Clive, 2015. "Charitable giving and its persistent and transitory reactions to changes in tax incentives: Evidence from the German taxpayer panel," Discussion Papers 2015/2, Free University Berlin, School of Business & Economics.
    20. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(4), pages 773-788, December.

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