UC San Diego

Researches in public finance have clarified the effects of tax policies that are neither originally intended nor easily observable. This work contributes to the literature of public finance by rigorously examining the effects of three particular tax policies using quantitative models and econometric analysis.

Chapter 1 aims to answer the question as to what is the optimal apportionment formula for the US state corporate income tax. States have raised sales apportionment weight and lower payroll weight to stimulate local labor demand. However, the policy discussions often ignore the negative effect of sales apportionment tax; the tax distorts the sales allocation of firms across states and causes an increase in local price level in the state. I construct a quantitative model that incorporates the effects of apportionment formula both on local labor demand and on the price level. The calibration suggests that the sales weight should be zero for the optimal tax policy of a single state because the negative effect on price level outweighs the positive effect on local labor under a range of plausible parameters.

Chapter 2 studies the effect of taxation on entrepreneurs' risk-taking, portfolio choice, and economic growth in the presence of a moral hazard problem in a dynamic general equilibrium model. The moral hazard problem occurs because the return of a type of entrepreneurial project depends on entrepreneurs' effort, which is private information. By collecting proportional consumption tax and redistributing the revenue, the government offers an opportunity for risk sharing to encourage risk-taking and spur economic growth. We show that when the moral hazard problem is absent, the full insurance is optimal in terms of welfare, and the economy grows faster. But if the moral hazard problem exists even in a slight degree, risk sharing through taxation cannot improve welfare.

Chapter 3 examines the relationship between household marginal tax rates and the probability of owning rental housing. I focus on the special provisions about passive losses introduced by 1986 TRA to test the theoretical prediction about this relationship. The empirical results based on the Surveys of Consumer Finances offer modest support for the prediction.