The quality of the estimators of the ETI

Thomas Aronsson (thomas.aronsson@umu.se), Katharina Jenderny and Gauthier Lanot
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, http://www.econ.umu.se

No 955, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: Measuring the elasticity of taxable income (ETI) is central for tax policy design. Yet, there are few arguments which support or infirm that current methods yield measurements of the ETI that can be trusted. Our first purpose is to use simulation methods to assess the bias and precision of the prevalent methods used in the literature (IV estimation and bunching methods). Thereby, we aim at (i) explaining the huge differences in empirical results, and (ii) providing arguments in favor of or against using these methods. Our second purpose is to suggest indirect inference estimation to improve the quality of the measurement. We find that the IV regression estimators may suffer from considerable bias and be quite imprecise, whereas the bunching estimators perform better in our controlled environment. We also show that using more of the information available in the data, estimators based on indirect inference principles produce more precise estimates of the ETI than any of the most commonly used methods.

Keywords: Elasticity of Taxable Income; Income Tax; Indirect Inference; IV estimation; Bunching; Monte Carlo simulations (search for similar items in EconPapers)
JEL-codes: D60 H24 H31 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2017-12-21
New Economics Papers: this item is included in nep-pbe
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.hh.umu.se/ues/ues955.pdf Full text (application/pdf)

Related works:
Journal Article: The quality of the estimators of the ETI (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:0955

Access Statistics for this paper

More papers in Umeå Economic Studies from Umeå University, Department of Economics Department of Economics, Umeå University, S-901 87 Umeå, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by David Skog (david.skog@umu.se).