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    Relationship between gross income and tax paid

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    The gross income and tax paid by a cross-section of 30 companies in 1988 and 1989 is given in the file tax.xls

    (a) Use these data to estimate the relationship for each of the years 1988 and 1989.
    TAXt= à?1 + à?2 incomet + et

    (b) Give brief interpretations of the two estimates of à?2

    (c) Give brief interpretations of the two estimates of à?1

    (d) Find the average income and average tax for each year, and compare the average tax rate and marginal tax rate for each year.

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    (a) Use these data to estimate the relationship for each of the years 1988 and 1989.
    TAXt= à?1 + à?2 incomet + et

    Using OLS regression by EXCEL data analysis (or any other statistical software), we can get the following results:
    For 1988: TAXt = -0.018 + 0.176 income + et
    For 1989: TAXt = -0.1085 + 0.2266 income + et

    (b) Give brief ...

    Solution Summary

    Find the average income and average tax for each year, and compare the average tax rate and marginal tax rate for each year.

    $2.19

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