Why we have parametric marginal tax rate functions, the values of those functions outside the income range they are estimated over may result in marginal tax rates that do not match the data well.
To solve this, it could be useful to parameterize the top marginal tax rate (perhaps by setting it to the top statutory rate). The MTR could then be the min of the value returned by the function or the top rate. However, this would introduce a kink in the MTR schedule which could cause problem in the model solution. So perhaps some smooth transition to this top rate would be better (albeit more complicated to implement)?
Why we have parametric marginal tax rate functions, the values of those functions outside the income range they are estimated over may result in marginal tax rates that do not match the data well.
To solve this, it could be useful to parameterize the top marginal tax rate (perhaps by setting it to the top statutory rate). The MTR could then be the min of the value returned by the function or the top rate. However, this would introduce a kink in the MTR schedule which could cause problem in the model solution. So perhaps some smooth transition to this top rate would be better (albeit more complicated to implement)?