The stata program taxcost.ado can be used in the same way as TAXSIM by logging into your NBER unix account. TAXCOST appends marginal tax rates to your dataset (using TAXSIM9) and calculates the utility cost of ignoring tax reforms given any set of tax filer characteristics and pre-reform and post-reform years as inputs. These utility cost calculations can be used to determine which tax reforms contain the most information about structural elasticities prior to an econometric analysis, analogous to a statistical power calculation; see Chetty (2009, NBER wp 15616).

The following simple example illustrates how to use taxcost.ado. It calculates the utility cost of ignoring changes in the tax system between 1984 and 1987 for an agent earning wage income of $200,000 in 1984 (with utility function given with a default elasticity of one).

Step 1. Log into your NBER account and type "stata" to open stata

Step 2. Type the following commands to create a one observation dataset:

set obs 1

gen year=1984

gen postyear=1987

gen pwages=200000

Step 3. Run taxcost to calculate intensive-margin utility costs:

taxcost, replace_int

Step 4. Display the output:

list in 1/1

The output should read as follows:

+---------------------------------------------------------------------------------------------------------+ | year postyear pwages MTR_pre MTR_post_noopt dollargain_int percentgain_int delta_TI_int | |---------------------------------------------------------------------------------------------------------| 1. | 1984 1987 200000 .5 .385 2892.305 2.47 50300 | +---------------------------------------------------------------------------------------------------------+

The variables listed are: the years and wage income inputted in step 2, the marginal tax rate for the pre-reform and post-reform years (computed by TAXSIM9), the dollar and percent cost of ignoring the tax change, and the change in taxable income required to reoptimize. For definitions of these variables, see the help file described below and section 4 of NBER wp 15616.

You can run the same commands on any stata .dta file, allowing for different tax characteristics and pre/post years as separate rows.

To access a detailed help file for taxcost.ado that lists all the options and input variables, type "help taxcost" at the stata prompt.

TAXCOST was written by Tord Krogh ([email protected]) and Zachary Liscow ([email protected]) to generate Figures 6-9 in NBER wp 15616.