Hello Everyone,
I am doing a time series data analysis (ARDL) and there I am using my independent variables as different types of taxes and its impact on income inequality. When I am using these taxes without variables that may affect income inequality I got majority of my tax has a significant and expected sign. So, in that case, do I have to add other variables that may affect income inequality? or is it okay to proceed with my model only with the taxes.
It is always advisable to include other relevant variables that may affect income inequality in your model, even if the taxes you are analyzing appear to have a significant impact on their own. This is because omitting important variables from your model can lead to biased and inconsistent parameter estimates, and can result in inaccurate conclusions about the relationship between taxes and income inequality.
By including additional variables, you can control for their effects and better isolate the impact of taxes on income inequality. For example, you may want to include variables such as education levels, unemployment rates, or demographic factors that are known to influence income inequality.
Additionally, including other relevant variables may help to strengthen the robustness and reliability of your results, as it reduces the risk of omitted variable bias and increases the generalizability of your findings.
Therefore, it is recommended to include other relevant variables in your model even if they do not appear to have a significant impact on their own. This will help ensure the accuracy and validity of your results, and improve the overall quality of your analysis.
It is always advisable to control for obvious predictors of the the outcome variables. This allows your to see the specific effect of the treatment.
Thank you Nderitu Githaiga . I have more doubts because I've done all the residual diagnostic tests such as normality test, stability test, heteroskedasticity test and serial correlation test and results are ok, even the reset Ramsey test is greater than 0.05. I observed based on the Literature, studies which were done on analyzing the impacts of tax composition on income inequality, in recent years they only used different taxes and not including other taxes. eg: Taxation and Income Inequality in Nigeria. So, I would be grateful if you can help me with this issue.
Hello Tharani Kanthasamy.
I believe there could be more determinants of income inequalities other than tax. I would suggest you introduce some additional variables and see how your results behave. You may also consider using other panel data estimation techniques.
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