Draw the share of total taxes T paid by those at different levels of gross income X, and at different ranks of X. Compute this as
the ratio of expected taxes over mean gross income m_X. Do the same for total benefits B. Compare this to the share of total
gross income, computed as X over m_X. What does this say?.

Answer

STEP 1: Use the DAD Application: DISTRIBUTION|NON PARAMETRIC REGRESSION

• After choosing the appropriate variable(s) and parameters, click on the  GRAPH button.

RESULTS

• When Y axis =1, T(X)=m
• Since ¶T/¶X>0, the tax T is progressive.
• Since ¶B/¶X>0, the transfer B is regressive.