Essays on urban economics and public finance

Public finance studies the role of the government in the economy. Governmental actions influence economic activity across space. Moreover, urban economics examines cities and other geographic units to understand the spatial distribution of the economy. In this dissertation, I use applied econometrics to understand variations in the spatial distribution of economic activity that are related to government taxation and other factors. In Chapter 1, I use unique data on locations and prices of gasoline retailers in the United States to estimate the effect of discontinuities on gasoline taxes on business location decisions and tax incidence. The econometric analysis shows that the expected number of gasoline stations on the low-tax side of a state border is higher than on the high-tax side. Gasoline consumers carry 75 percent of the gasoline tax on the high-tax side, as compared to 100 percent on the low-tax side. Both effects on location and tax incidence dissipate with 15 miles of distance. These results provide estimates of the effect of tax discontinuities at borders on the location choices of retailers and consequences for the pass-through of taxes to prices. Chapter 2 identifies different pricing strategies of gasoline retailers, measures their consequences for price-level variability, and explores their determinates. Using the same unique data on locations and prices of gasoline retailers in the United States, Chapter 2 shows a high degree of heterogeneity in pricing strategies within retail gasoline markets. The econometric analysis shows robust gasoline price differences that depend on the pricing strategy of the gasoline retailer. Finally, the analysis rules out conventional forms of collusion; it shows the need for a new theory to explain the coexistence of different pricing strategies, and proposes that the choice of pricing strategy relates to the type of consumers that gasoline retailers target. Chapter 3 switches the focus to the distortionary effects of taxes on the rental housing market. The analysis exploits a feature of the tax code in the Tehran rental housing market where the tax-exemption threshold is based on the property's size in square meters. Using administrative data on rental housing transactions, Chapter 3 shows substantial bunching of properties with size just below the tax cutoff, suggesting strong behavioral responses to the tax kink. The analysis develops a structural framework with property taxes and filing costs to estimate the responses of supply and demand for rental housing size. Chapter 3 shows a mid-run (10-year) price response of rental housing size supply of 1.36, and a price response of rental housing size demand of -0.17