Essays in Property Taxation and Multinational Tax Avoidance

Abstract

This dissertation exploits variation in tax policies in order to better understand the incentive effects of taxation on individual and firm behavior. The results presented herein are intended to inform policy debates in the two areas examined--property and multinational taxation--as well as the formulation of tax policy more generally.

Chapter II extends the standard model of property tax capitalization to a unique set of features of the Michigan property tax system in order to address a primitive question on taxpayer behavior: namely, do households understand the property tax implications of their home purchases? As shown, Michigan homebuyers fundamentally fail in their comprehension of the tax system, behaving--incorrectly--as though temporary idiosyncratic differences in property tax obligations would persist indefinitely. Beyond its stark distributional consequences and the efficiency implications of suboptimal housing consumption, cognitively-biased behavior of this nature may nevertheless mitigate welfare losses from the lock-in effect of acquisition-value based assessments which characterize nearly half of all states' property tax systems in the U.S. Michigan's implementation of such assessment limits may thereby conceivably constitute a step in the direction of optimal tax salience, with the findings of this chapter reinforcing the view that salience considerations ought to play an important role in tax policy design.

Chapters III and IV adopt different methodologies to quantifying tax avoidance activity among U.S. multinational corporations resulting from differential reductions in domestic taxation of foreign earnings. In Chapter III, the case considered is that of the dividends received deduction (DRD) enacted under the American Jobs Creation Act of 2004, which provided temporary incentives for multinationals to reallocate domestic income to low-tax foreign jurisdictions in order to repatriate these immediately under preferential terms. Viewed as an experiment with 85 percent territoriality, estimates of a modest income reallocation response to the DRD may alleviate concerns associated with the tax avoidance consequences of implementing a territorial tax system. Chapter IV instead examines stock market reactions to a proposed DRD renewal and finds evidence consistent with investors rewarding multinational tax avoidance without offering the statistical precision necessary to make definitive conclusions as to its magnitude.