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5.6 Reliability of AMTR Estimates

It is clear that, with different qualities of data collection likely throughout the 100 year period that we are considering, together with differences in the suitability of available data for our purposes and our methodologies to analyse them, the reliability of our AMTR estimates is also likely to be variable. In general we might expect the reliability of the estimates to improve over time. In particular the post 1981 data, being based on Inland Revenue unit record data might be expected to be more accurate. Encouragingly, when we estimate the three overlap years, 1981-83, using the more aggregative data and methods applied in the pre-1981 period, there is a reasonably close match with the IRD estimates. This suggests that, at least in the years leading up to 1981, calculation of AMTRs from aggregate-level income information is relatively accurate. Similarly, as noted earlier, the effect of adjusting the AMTRs using total exemptions data, the accuracy of which is unknown, would appear in general to have little impact on year-to-year changes in the AMTR. Nevertheless, the omission of a range of social welfare transfer payments from our EMTRj and AMTR calculations is likely to be especially important from the 1970s onwards when such income-related payments became more prevalent.

For pre-1922 years we have chosen not to extrapolate back to 1892 or interpolate between years of available data because we have no reliable income information on which to base them (though we do know the tax schedule). Subsequently, the main source of inaccuracy in our annual estimates may be the need to use less frequent census and other data to estimate annual non-filer income shares during the period to 1951; see Appendix 4. These involve a number of simplifying assumptions and rely on indirect methods to identify incomes for those who are not recorded in any contemporary income database. Further, the introduction in 1959 of the PAYE tax administration system probably improved the quality of central recording of taxpayer incomes in aggregate and may therefore impact on the reliability of our AMTR estimates. More generally, we have no alternative data to apply as a cross-check on the method we use to incorporate the impact of tax-exempt income on EMTRjs; namely using the ratio of exemptions to gross income as shown in equation (7). However, the impact of this adjustment is generally small on the EMTRj estimates compared to those without this adjustment.

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