On Estimating Marginal Tax Rates and Tax Progressivities for U.S. States
This research presents a simple procedure for improving state-specific estimates of marginal tax rates (MTRâ€™s). Most research employing MTRâ€™s follows a procedure developed by Koester and Kormendi (K&K, 1987). Unfortunately, the time-invariant nature of the K&K estimates precludes their use as explanatory variables in panel data studies. Furthermore, their estimates are not based on statutory tax parameters. In contrast, our procedure produces timevarying estimates of MTRâ€™s that are directly related to observed changes in statutory tax parameters. Using comprehensive data on state tax policy parameters, our procedure produces state-specific MTRâ€™s estimates for all 50 states over the years 1977-2004. We compare our refined MTRâ€™s to alternative estimates and evaluate implications for estimating tax progressivity for US states.
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