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

  • Triest, Robert K.
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    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.

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    Article provided by National Tax Association in its journal National Tax Journal.

    Volume (Year): 51 (1998)
    Issue (Month): n. 4 (December)
    Pages: 761-72

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    Handle: RePEc:ntj:journl:v:51:y:1998:i:n._4:p:761-72
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    1. Triest, Robert K, 1992. "The Effect of Income Taxation on Labor Supply when Deductions Are Endogenous," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 91-99, February.
    2. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
    3. Gruber, Jonathan & Poterba, James, 1994. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 701-33, August.
    4. Burtless, Gary & Hausman, Jerry A, 1978. "The Effect of Taxation on Labor Supply: Evaluating the Gary Negative Income Tax Experiments," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1103-30, December.
    5. Joel Slemrod, 1998. "A General Model of the Behavioral Response to Taxation," NBER Working Papers 6582, National Bureau of Economic Research, Inc.
    6. Burman, Leonard E & Randolph, William C, 1994. "Measuring Permanent Responses to Capital-Gains Tax Changes in Panel Data," American Economic Review, American Economic Association, vol. 84(4), pages 794-809, September.
    7. Robert Moffitt, 1994. "Welfare Effects on Female Headship with Area Effects," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 621-636.
    8. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-39, Spring.
    9. Williamson Hoyne, Hilary, 1997. "Does welfare play any role in female headship decisions?," Journal of Public Economics, Elsevier, vol. 65(2), pages 89-117, August.
    10. Randolph, William C, 1995. "Dynamic Income, Progressive Taxes, and the Timing of Charitable Contributions," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 709-38, August.
    11. Moffitt, Robert, 1986. "The Econometrics of Piecewise-Linear Budget Constraints: A Survey and Exposition of the Maximum Likelihood Method," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(3), pages 317-28, July.
    12. Nada Eissa, 1995. "Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment," NBER Working Papers 5023, National Bureau of Economic Research, Inc.
    13. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
    14. Slemrod, Joel, 1998. "Methodological Issues in Measuring and Interpreting Taxable Income Elasticities," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 773-88, December.
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