Dear all,

I have a problem understanding how i should specify the contol variable age in the following regression.

Code:
 
 xtreg lnsickdays lnmrtax i.year age inkap, fe
I am measuring the elasticitiy between marginal tax and used sickdays between 2 years and i would like to add age dummy (1 = over 45 year) as a control variable to imitiate earlier work on this field. Although i do not know exactly why, it has come to my understanding that using just age alone, like in the code above, will not be the correct way?

I am not interested in a change in results from people becoming 1 year older between the 2 time periods. I am only interested in presenting the different results in used sickdays for people below/above the age of 45 years.

Should i instead use age as a interaction variable together with the i.year?

Example:

Code:
 
 xtreg lnsickdays lnmrtax i.year##age inkap, fe
If i managed to explain my problem clearly enough, please help me understand why i should do it a certain way and please also provide me with some sort of interpretation for the different ways.


Have a nice day

Viktor Öberg