Relationship between gross income and tax paid
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.