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Bias in Tax Progressivity Estimates

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  • König, Johannes

Abstract

Tax progressivity is central in public and political debates when questions of vertical equity are raised. Applied, structural research demands a simple way to capture it. A power function approximation delivers one parameter that captures the residual income elasticity - a summary measure of progressivity. This approximation is accurate, tractable, and interpretable, and hence immensely popular. The most common procedure to estimate this parameter, a log ordinary least squares specification, produces biased and inconsistent estimates. A nonlinear estimator solves this issue and, using different data sets, I find differences in estimates between 6 and 14 percent.

Suggested Citation

  • König, Johannes, 2023. "Bias in Tax Progressivity Estimates," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 76(2), pages 267-289.
    • Handle: RePEc:zbw:espost:296752
    DOI: 10.1086/724186
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    References listed on IDEAS

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    More about this item

    Keywords

    Income taxation; progressivity; nonlinear estimation;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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