Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications A recursive algorithm to generate piecewise linear budget contraints

A recursive algorithm to generate piecewise linear budget contraints

Alan Duncan and Graham Stark
IFS Working Paper W00/11
This paper introduces a recursive algorithm with which to generate complete and accurate budget constraints using static microsimulation models. We describe the generic algorithm and discuss and extension by which reasons for any change in the marginal effective tax rate may be explained. We derive continuous expressions for average tax rate (ATR), average marginal tax rate (AMTR), replacement rate (RR) and marginal effective tax rate (METR) schedules, expressed solely in terms of the marginal wage rate and 'virtual' income. A practical application serves to highlight the usefulness of this algorithm in fiscal policy analysis at micro level.

More on this topic

IFS Working Paper W19/31
The UK taxes business income at much lower rates than employment income. In this paper we describe the problems caused by that differentiation and assess the main arguments used to defend it. We summarise the Mirrlees Review’s proposals for radical reform that would align tax rates across legal ...
Briefing note
The tax and benefit system is a key tool for a government trying to reduce inequality. In this briefing note, we examine the effects that cash benefits and taxes had on UK inequality in 2016–17.
This presentation was given at a seminar at the London School of Economics on 19 November 2018.
This presentation is one of a series on the economics of tax policy.