Three Essays on Taxation Analysis

Abstract

This dissertation investigates the commodity tax and corporate income tax. Chapter 1 provides a general introduction and Chapter 2 consists of a literature review.

Chapters 3 and 4 analyze how state governments determine their commodity tax rate and respond to other state and federal government tax rate changes. We construct and estimate the household utility function and the state government objective function, and compute the slope of the reaction functions to evaluate the tax interactions between state governments and between state and federal governments. We find that horizontal tax interactions are very small and that state governments do not change their tax rate even though the neighboring state governments change their tax rates. On the other hand, vertical tax interactions are positive, and if the federal government increases its tax rate, state governments also raise their tax rates to preserve their tax base.

Chapter 5 discusses how the corporate income tax affects firm location and exit decisions. We compute and compare three kinds of individual firm-level tax rates and examine the effect of these corporate income taxes on firm location and exit behaviour. We find that each tax rate has a different distribution across provinces and that using a different tax provides a different interpretation of tax effects. In most cases, high corporate income tax rates are found to discourage firm location choice and encourage firm exit decisions.