A BEJEAP Contributions article.

Abstract

Researchers may want to estimate the percentage change of a variable, such as household wealth or corporate profits, that takes on economically significant nonpositive values. Using the logarithmic transformation, however, requires discarding observations with nonpositive values. This paper describes a possible solution to this problem-the inverse hyperbolic sine transformation-and shows how to implement this transformation optimally in the case of median regression. As an illustration of the usefulness of this transformation, I revisit a specification sometimes used to estimate the effect of tax incentives on household saving.

Submitted: March 18, 2005 · Accepted: May 30, 2006 · Published: July 16, 2006

Originally published in Contributions to Economic Analysis & Policy.

Recommended Citation

Pence, Karen M. (2006) "The Role of Wealth Transformations: An Application to Estimating the Effect of Tax Incentives on Saving," Contributions to Economic Analysis & Policy: Vol. 5 : Iss. 1, Article 20.
Available at: http://www.bepress.com/bejeap/contributions/vol5/iss1/art20

Related Files

k401_public.zip (19550 kB)
Inverse hyperbolic sine code and data