# Setting up Regression

• Apr 30th 2012, 01:53 PM
TheMan1
Setting up Regression
I'm working on a project for school and struggling to set up the regression properly. I have data that is taken every year from all 50 states, GDP. I want to run a regression that looks at the growth of GDP based on that state's income tax. The table below should give you an idea how I have it set up now. Is this the best way to do it? It seems excessive to have 49 dummy variables but I'm unsure of a better way to set it up while including state. Also, for year, is it best to put in the actual year, or just go sequentially with 1's, 2's etc?
 GDP Year Recession Tax Alaska Alabama California 3.4 2001 1 3 1 0 0 4.1 2001 1 4 0 1 0 3.8 2001 1 2.1 0 0 1 3.5 2002 0 3 1 0 0 4.2 2002 0 4 0 1 0 4.0 2002 0 2.4 0 0 1
• May 3rd 2012, 12:40 PM
dougb
Re: Setting up Regression
I would set up just a few variables:
Dependent variable, Y: growth in state GDP
independent variables:
X1: National GDP (controls for all exogenous variables)
X2: state tax rate
enter all your data for all 50 states for all available years (could be 500 observations for 10 years!). Y (state growth) = a1 + b1*National growth + b2*state tax rate. Coefficient b2 becomes the effect of the tax rate!
• May 3rd 2012, 12:45 PM
TheMan1
Re: Setting up Regression