Working Paper: NBER ID: w27024
Authors: Stefan Steinerberger; Aleh Tsyvinski
Abstract: We consider a small set of axioms for income averaging – recursivity, continuity, and the boundary condition for the present. These properties yield a unique averaging function that is the density of the reflected Brownian motion with a drift started at the current income and moving over the past incomes. When averaging is done over the short past, the weighting function is asymptotically converging to a Gaussian. When averaging is done over the long horizon, the weighing function converges to the exponential distribution. For all intermediate averaging scales, we derive an explicit solution that interpolates between the two.
Keywords: No keywords provided
JEL Codes: H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income fluctuations (D31) | tax liabilities (H26) |
| averaging method (C51) | tax burden (H22) |
| recursivity and locality (R32) | averaging function (C51) |
| averaging function (C51) | unique weighting function (C46) |
| short past income (E25) | Gaussian distribution (C46) |
| longer horizons (C41) | exponential distribution (C46) |