ON INCOME-TAX FUNCTIONS - AN APPLICATION OF ROBUST, REGRESSION-BASED DIAGNOSTICS TO MODELS OF CONDITIONAL MEANS

This paper implements a variety of robust, regression-based diagnostic s to nonlinear models of effective federal individual income tax. Esti mates of effective marginal tax rates obtained from these tax models a re frequently used in the empirical growth and real business cycle lit erature to quantify the macroeconomic effects of distortionary taxatio n. Based on a battery of conditional mean tests, the paper concludes t hat none of the tax models used in the empirical growth and real busin ess cycle literature provides a good basis for obtaining reliable esti mates of the effective marginal tax rates. Therefore, conclusions base d on such tax estimates must be treated with caution.