Essays in Public Finance and State and Local Taxation

This dissertation is in the field of public finance and taxation, with a specialization in state and local taxation in the United States. In the first chapter, it is sought to understand how business taxation at the state level affects the rate of entry and exits of businesses—or business dynamism. In the second and third chapters, The topic is approached from a different angle, and the following question is asked "how do economic shocks affect local taxation?" with a specific focus on property taxes. Business dynamism has been linked to innovation and employment creation, yet there is little empirical research on the relationship between business taxation and business operations births and deaths. Using several identification strategies that consider the potential endogeneity between tax changes and local economic conditions, a negative effect of the state corporate tax on the entry of establishments and firms is documented: an increase in the top state corporate tax rate of one percentage point leads to a decline in the entry rate of about -1.5% to -3.5%. The effect on exits is positive but smaller (0.5%–1.5%) and usually not statistically significant. Further, the presence of spillovers across state borders at the county and census tract level was evaluated, and no evidence was found that they were significant or drove the main findings. However, it was found that spillovers can be large in areas in close proximity to the border—within five miles. In the second chapter, newly collected data on property tax rates, assessment values, and property tax levies were used to study the effect of falling home prices associated with the Great Recession on property tax revenues. The mechanical channel through which home values affected assessed values as well as the policy channel through which policymakers responded to changes in the tax base were teased out. It was found that the resilience of property tax revenues can be attributed to two main factors: a small correlation between home price changes and assessed values after 2007 and large increases in property tax rates in areas facing a negative shock in their tax base. It was found that the recession had a small but negative and lasting impact on the tax base. Negative shocks were offset by as much as 80%–85% in the long run, implying that a 10% decrease in the tax base led to only a 1.5% decline in property tax revenues. Rate limits seem to reduce the ability of policymakers to offset negative shocks in the tax base and lead to a bigger decline in revenues. Jurisdictions with a levy limit are much more likely to smooth out negative and positive shocks. How did exposure to robotization impact local revenues and public goods provision? In the third chapter, it is shown that exposure to robots leads to a decline in total revenues, driven by a large fall in tax revenues, specifically property taxes. Spending was found to be similarly affected, with expenditures on transport, capital outlays, and insurance and trust being primarily hit. The role of local autonomy, as defined by areas with functional home rule, as well as the role of property tax limits were investigated. It was found that the decline in taxes was less pronounced in areas with higher autonomy and more pronounced in areas with strict property tax limits.PhDEconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/169744/1/tombros_1.pd