Promises, Promises: the States&Apos; Experience with Income Tax Indexing

41 Pages Posted: 1 Jun 2011 Last revised: 31 May 2021

See all articles by Daniel R. Feenberg

Daniel R. Feenberg

National Bureau of Economic Research (NBER)

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 1988

Abstract

The paper discusses five early approaches to the price (and quantity) index number problem. The five approaches are: (1) the fixed basket approach; (ii) the statistical approach; (iii) the test or axiomatic approach; (iv) the Divisia approach and (v) the economic approach. The economic approach makes use of the assumption of optimizing behavior under constraint and the approach is discussed under four subtopics: (i) basic theoretical definitions; (ii) the theory of bounds; (iii) exact index numbers and (iv) econometric estimation of preferences. The paper also discusses several topics raised by Jack Triplett in a recent paper, including: (i) the merits of the test approach to index number theory, (ii) the chain principle and alternatives to it; (iii) the substitution bias and (iv) the new good bias. Although the paper is for the most part an extensive historical survey, there are a few new results in section 8 on multilateral alternatives to the chain principle. Also in section 6.3, it is shown that the Paasche, Laspeyres and all superlative indexes will satisfy the circularity test to the first order.

Suggested Citation

Feenberg, Daniel R. and Rosen, Harvey S., Promises, Promises: the States&Apos; Experience with Income Tax Indexing (September 1988). NBER Working Paper No. w2712, Available at SSRN: https://ssrn.com/abstract=1856393

Daniel R. Feenberg (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Harvey S. Rosen

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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United States

CESifo (Center for Economic Studies and Ifo Institute)

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