Essays in public finance and industrial organization.

Abstract

Chapter 1 examines the effects of state corporate income taxes on the location of foreign direct investment, taking into account the state governments' behavior when setting taxes. Ignoring the tax setting behavior of states may bias the estimate of the tax effects on foreign direct investment. I estimate the tax effects on investment location adapting a discrete choice model of differentiated products, which allows at the same time to control for the outside options of investors and to use instrumental variables to solve the problem of tax endogeneity. I find the tax elasticity to be consistently around -1. Chapter 2 addresses the important question of the extent to which personal and corporate income taxes are used to compensate for sales tax fluctuations within the U.S. states. State governments finance their expenditures with multiple tax instruments, so when collections from one source decline, they are typically compensated by greater revenues from other sources. The results show that one percent increase in the sales tax rate is associated with a half and a third percent decrease in the personal and corporate income tax rates respectively. In terms of tax revenues per capita, the results show that a one percent increase in the sales tax revenue per capita is associated with a 3 percent and a 0.9 percent decrease in the corporate and personal income tax revenue per capita respectively. Chapter 3 investigates the competitive behavior of the U.S. copper industry. Before 1978, most of the U.S. domestic copper production and an important fraction of the imports of refined copper were traded at a price known as the U.S. producer price, which was set by the major U.S. producers. At the same time, the rest of the world was trading copper at prices determined in auction markets. There are several explanations in the literature to account for the existence of market power in the U.S. industry. This essay tests if that market power was actually exercised or not and to what extent. The results show that copper prices were close to the ones predicted by a competitive model of the industry.