Figure 3b: Typical Joint Distribution in Micro-Data

3.5 4 4.5 5 5.5 60

0.1

0.2

0.3

0.4

0.5

0.6

Food

Sha

re

Log Expenditure

3.5 4 4.5 5 5.5 6 6.50

0.2

0.4

0.6

0.8

1

Log Expenditure

Den

sity

kernel densitynormal density

Fig 3a: The Density of Log Consumption: FES

3 3.5 4 4.5 5 5.5 6 6.5log total expenditure

0.1

0.2

0.3

0.4

0.5

0.6

budg

et s

hare

couple & 1 kidcouple & 2 kids10th bootstrap percentile90th bootstrap percentileSI curve (1 kid)SI curve (2 kids)

Fig 3c: Shape Invariant Engel Curve: Food Share

3 3.5 4 4.5 5 5.5 6 6.5log total expenditure

0.03

0.04

0.05

0.06

0.07

0.08

0.09bu

dget

sha

re

couple & 1 kidcouple & 2 kids10th bootstrap percentile90th bootstrap percentileSI curve (1 kid)SI curve (2 kids)

Fig 3d: Shape Invariant Engel Curve: Alcohol Share

Figure 10a: US Gasoline Demand: Conditional Mean for Upper Quartile of Income

0.18 0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.386.9

7

7.1

7.2

7.3

7.4

7.5

7.6

7.7

7.8

7.9Demand estimates and confidence interval at upper income group

log price

log

dem

and

unconstrained estimateconstrained estimatesimultaneous CI (upper)simultaneous CI (lower)

Blundell, Horowitz and Parey (2008)

Figure 10a: US Gasoline Demand: Conditional Mean for Median Income

Blundell, Horowitz and Parey (2008)

0.18 0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.386.9

7

7.1

7.2

7.3

7.4

7.5

7.6

7.7Demand estimates and confidence interval at middle income group

log price

log

dem

and

unconstrained estimateconstrained estimatesimultaneous CI (upper)simultaneous CI (lower)

Figure 10a: US Gasoline Demand: Conditional Mean for 25% Income

Blundell, Horowitz and Parey (2008)

0.18 0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.386.7

6.8

6.9

7

7.1

7.2

7.3

7.4

7.5Demand estimates and confidence interval at lower income group

log price

log

dem

and

unconstrained estimateconstrained estimatesimultaneous CI (upper)simultaneous CI (lower)

Figure 8c: DWL as a % of Tax Paid

 Price Change Income DWL (as % of tax paid)unconstrained constrained log-log

   $1.22 - $1.27  $72,500 4.20 % 3.27 % 1.80 %

$57,500 3.08 % 4.50 % 1.80 %  $42,500 -1.33 % 0.72 % 1.79 %

 $1.32 - $1.37 $72,500 -3.02 % 0.49 % 1.67 %$57,500 2.61 % 2.07 % 1.66 %$42,500 -2.23 % 0.77 % 1.66 %

Blundell, Horowitz and Parey (2008)

Figure 13a Median Gasoline Demand at Median Income

0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38

6.8

7

7.2

7.4

7.6

7.8

8

log price

log

gallo

ns

CONFIDENCE INTERVALS, tau=0.5, middle income group (alpha=0.1)

Blundell, Horowitz and Parey (2009)

Figure 13b Median Gasoline Demand at 75% Income

0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38

6.8

7

7.2

7.4

7.6

7.8

8

log price

log

gallo

nsCONFIDENCE INTERVALS, tau=0.5, upper income group (alpha=0.1)

Blundell, Horowitz and Parey (2009)

Figure 13d Gasoline Demand Quantiles at Median Income

0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.386.6

6.8

7

7.2

7.4

7.6

7.8

8Quartile estimates (middle income group)

Blundell, Horowitz and Parey (2009)

0.2 0.22 0.24 0.26 0.28 0.3 0.32 0.34 0.36 0.38

6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

8

8.2

Quantile estimates (median income group)

Figure 13e Gasoline Demand Quantiles at Median Income

Blundell, Horowitz and Parey (2009)

Figure 8a: Distance as an Instrument for Gasoline Price

Figure 8b: Nonparametric Exogeneity Test, By Income

income category obs.   test stat.  

critical value

alpha=0.05

rejection alpha=0.05  

critical value

alpha=0.1

rejection alpha=0.1

25% 235   0.039   0.645 No   0.471 No50% 432 0.298 0.491 No 0.357 No75% 194   0.065   0.293 No   0.221 No

Notes: Cross-validation of bandwidth to estimate fXW results in hXW = 0.27.

Bandwidth to estimate fX is chosen as hX = n^(1/5 - 7/24)*h_XW (as in Blundell & Horowitz 2007, Section 4).

Blundell, Horowitz and Parey (2008)

Zero-rated:FoodConstruction of new dwellingsDomestic passenger transportInternational passenger transportBooks, newspapers and magazinesChildren’s clothingDrugs and medicines on prescriptionVehicles and other supplies to people with disabilitiesCycle helmets

Reduced-rated:Domestic fuel and powerContraceptivesChildren’s car seatsSmoking cessation productsResidential conversions and renovations

VAT-exempt:Rent on domestic dwellingsRent on commercial propertiesPrivate educationHealth servicesPostal servicesBurial and cremationFinance and insurance

Estimated cost (£m)11,3008,2002,5001501,7001,3501,35035010

2,95010510150

3,5002003009002001004,500

Indirect Taxation – UK case

Bread and Cereals Negative

Meat and Fish Negative

Dairy products Negative

Tea and coffee Negative

Fruit and vegetables Negative

Food eaten out Positive

Beer Positive

Wine and spirits Positive

Domestic fuels Negative

Household goods and services Positive

Adult clothing Positive

Childrens’ clothing Negative

Petrol and diesel Positive

Leisure goods and services Positive

Impact on budget share of an additional hour workedConditional on income and prices

Source: QUAIDS on UK FES, MR1

Effect of base broadening reform with earnings tax reform compensation, by expenditure decile

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Poorest 2 3 4 5 6 7 8 9 Richest

Expenditure decile group

-£8

-£6

-£4

-£2

£0

£2

£4

£6

£8

£10

% rise in COL % rise in inc cash gain/loss

Effect of base broadening reform with earnings tax instruments as compensation (MRII), by income decile

Reform revenue neutral and designed to leave effective tax rates on earnings unchanged

EMTR: before and after indirect tax reform40

%45

%50

%55

%60

%

0 100 200 300 400 500 600 700 800 900 1000 1100 1200

Gross earnings (£/week)

Before reform After reform

35%

40%

45%

50%

55%

0 100 200 300 400 500 600 700 800 900 1000 1100 1200

Gross earnings (£/week)

Before reform After reform

Reform revenue neutral and designed to leave effective tax rates on earnings unchanged

PTR: before and after indirect tax reform

Welfare gains - Distribution of EV/x by ln(x)

Source: MRII

ln x