Ravallion, MartinChen, Shaohua2013-10-022013-10-022013-08https://hdl.handle.net/10986/16006Empirical studies of tax and benefit incidence routinely ignore behavioral responses and measurement errors. This paper offers an econometric method of estimating the mean benefit withdrawal rate (marginal tax rate) allowing for incentive effects, measurement errors, and correlated latent heterogeneity in incidence. Under the method's identifying assumptions, a feasible instrumental variables estimator corrects for incentive effects and measurement errors, and provides a bound for the true value when there is correlated incidence heterogeneity. A case study for a large cash transfer program in China indicates that past methods of assessing benefit incidence using either nominal official rates or raw tabulations from survey data are deceptive. The program entails a nominal 100 percent benefit withdrawal rate -- a poverty trap. However, the paper finds that the actual rate is much lower, and clearly too low in the light of the literature on optimal income taxation. The paper discusses likely reasons based on the qualitative observations.en-USCC BY 3.0 IGOABSOLUTE VALUEACCOUNTINGAGGREGATE INCOMEANTI-POVERTYAVERAGE INCOMEAVERAGE RATEBASE YEARBENCHMARKCASH TRANSFER PROGRAMSCASH TRANSFERSCHILD LABORCLASSICAL ECONOMISTSDATA SETSDEMOCRACYDEVELOPED COUNTRIESDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDISTRIBUTIONAL IMPACTDOWNWARD BIASECONOMETRICSECONOMIC BENEFITSECONOMIC DEVELOPMENTECONOMIC HISTORYECONOMIC INEQUALITYECONOMIC POLICIESECONOMIC RESEARCHECONOMIC REVIEWECONOMIC STUDIESECONOMIC TRANSFORMATIONECONOMICSELASTICITYELASTICITY OF SUBSTITUTIONEMPIRICAL STUDIESEMPLOYMENT INCOMEEXPECTED VALUEEXPLANATORY VARIABLESFINANCIAL CRISISGROWTH RATESHIGH UNEMPLOYMENTHOUSEHOLD INCOMEHOUSEHOLD NEEDSHOUSEHOLD SURVEYHUMAN DEVELOPMENTIMPACT ON POVERTYINCENTIVE EFFECTSINCIDENCE ANALYSISINCOMEINCOME COMPONENTSINCOME DISTRIBUTIONINCOME GAPINCOME INEQUALITYINCOME LEVELINCOME POVERTYINCOME SHOCKSINCOME SOURCESINCOME TAXATIONINCOME TRANSFERINCOMESINEQUALITYINEQUALITY AVERSIONINNOVATIONINSURANCELABOR FORCELABOR FORCE PARTICIPATIONLABOR MARKETLABOR MARKETSLABOR SUPPLYLABOURLABOUR MARKETLABOUR SUPPLYLINEAR REGRESSIONMEAN INCOMEMEASUREMENT ERRORMEASUREMENT ERRORSNEGATIVE CORRELATIONNOMINAL RATEOLD AGEOPEN UNEMPLOYMENTPOLICY CHANGESPOLICY DESIGNPOLICY DISCUSSIONSPOLICY MAKINGPOLICY REFORMPOLICY RESEARCHPOLITICAL ECONOMYPOORPOOR COUNTRIESPOOR PEOPLEPOSITIVE CORRELATIONPOVERTY ALLEVIATIONPOVERTY GAPPOVERTY IMPACTPOVERTY LINEPOVERTY LINESPOVERTY MEASUREPOVERTY REDUCTIONPOVERTY REDUCTION OBJECTIVEPRIVATE TRANSFERSPUBLIC ECONOMICSPUBLIC POLICYPUBLIC SPENDINGRANDOM EFFECTSREDISTRIBUTION POLICIESREDISTRIBUTIVE POLICIESREDUCING POVERTYRURALSAFETYSAFETY NETSAFETY NETSSERIAL CORRELATIONSOCIAL ASSISTANCESOCIAL DEMOCRACYSOCIAL POLICIESSOCIAL POLICYSOCIAL PROGRAMSSOCIAL SAFETYSOCIAL SECURITYSOCIAL SPENDINGTARGETINGTAXATIONUNEMPLOYEDUNEMPLOYMENTWAGESWARWEALTHWELFARE SYSTEMWORKING HOURSmarginal taxfiscal incidenceoptimal taxationtransferspovertyWorld Bank10.1596/1813-9450-6573