Estimating and Evaluating Proxies for the Marginal Tax Rate

Kerry Pattenden
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Kerry Pattenden: School of Business and Economics, Sydney University, Sydney NSW 2006. Email: kpattenden@econ.usyd.edu.au

Australian Journal of Management, 2002, vol. 27, issue 2, 187-202

Abstract: Graham (1996b) tested proxies for the marginal tax rate and derived a number of important results. This paper re-examines two factors raised by Graham's work: the impact of tax regulations on proxy performance, and the presence of bias in proxy construction. Simulation methods create a simple tax world where the ‘true’ marginal tax rate is known. Tax proxies are ranked against this rate using regression diagnostics. Manzon's proxy is the best performing of the simple tax proxies tested and is an unbiased estimate of the underlying tax process. The impact on proxies of tax loss treatments is assessed. Evidence is found that proxies differ in performance across different loss treatments. Evidence is found of an inbuilt preference between some variants of a simulated tax proxy and the tax benchmark.

Keywords: TAX RATES; TALOSS TREATMENTS; SIMULATION MODEL (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:27:y:2002:i:2:p:187-202

DOI: 10.1177/031289620202700205

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