The Relationship between Taxes, Income, Social Benefits, Spending, and Debt with the Trade Deficit (Part III)

Starting posting some of my blogs from my other site at Townhall at http://patrickbohan.blogtownhall.com/

A new linear error model was created similar to the one used in Part I of this series of blogs except a new column of data was added – the annual national trade deficit (adjusted for oil imports). Once again to understand how a linear error model is created and analyzed please refer to my blog post: Creating an Election Model (Part I, Part II, and Part III) posted on October 4, 5, and 6 2010. Below is the result of the first linear regression analysis using this new linear error model.

n 20

R2 0.98
Adjusted R2 0.96
SE 4.785E+04

Term Coefficient 95% CI SE t statistic DF p
Intercept 1213554 -267292 to 2694400 679657 1.79 12 0.0994
STAX 1.091 -0.224 to 2.406 0.6036 1.81 12 0.0959
SCS -0.175 -0.341 to -0.009 0.0761 -2.30 12 0.0402
TaxSB 0.2228 -1.0321 to 1.4778 0.57598 0.39 12 0.7056
Debt 0.007289 -0.010171 to 0.024748 0.0080134 0.91 12 0.3810
E Tax -52214 -187754 to 83326 62208 -0.84 12 0.4177
Q1 ISB -16.86 -75.02 to 41.30 26.693 -0.63 12 0.5394
Q5 ISB -18.37 -48.60 to 11.86 13.874 -1.32 12 0.2102



Source of variation Sum squares DF Mean square F statistic p
Model 1.097E+12 7 1.567E+11 68.43 <0.0001
Residual 2.748E+10 12 2.290E+09
Total 1.124E+12 19


Coefficients Coefficient Value Value Trade Deficit (Oil) Ave Trade Deficit (Oil)
Intercept 1213554 1 1.21E+06 1 1213554
Q5 ISB -1.84E+01 5.08E+04 -9.33E+05 4.68E+04 -859716
SCS -1.75E-01 1.25E+07 -2.19E+06 1.25E+07 -2187500
Stax 1.091 1.15E+06 1.25E+06 1.15E+06 1254650
Etax -52214 8 -4.18E+05 11 -574354
Q1 ISB -16.86 1.78E+04 -3.00E+05 2.18E+04 -367548
TaxSB 0.2228 6.97E+05 1.55E+05 6.97E+05 155291.6
Debt 0.007289 1.00E+08 7.29E+05 1.00E+08 728900
-4.86E+05 -636722.4
Result -4.86E+11 -6.36722E+11


The above model has a very good correlation as shown by the R² variable equal to .98. The results indicate that the annual national trade deficit would increase from a loss of 486 billion to 637 billion dollars (remember this is based on data through 2008) by raising the effective tax rate (Etax) from 8 to 11%. I also varied the first quintile’s income (Q1 ISB – takes government entitlement income into account) from 17,800 dollars to 21,800 dollars. On the other hand, I reduced income earned by the fifth quintile from 50,800 dollars to 46,800 dollars. Tomorrow I will post a similar analysis that shows a different trend. The bottom line: higher taxes means U.S. businesses will be less productive and therefore; export fewer goods and services increasing the national trade deficit.

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