Essays on Taxation: Capitalization and Efficiency

This dissertation includes three essays investigating the effect of taxation and tax policies on income inequality, housing values, and excess burden from homeownership, separately. Chapter 2 estimates the degree to which subnational governments can redistribute post-tax income. State and local governments attempt to reduce income inequality via progressive taxation. However, interstate mobility could undermine such attempts through gross-wage adjustments. The higher the degree of wage capitalization, the lower the ability of income redistribution. Chapter 3 uses proprietary data from the Dallas Central Appraisal District (DCAD) to estimate the degree of property-tax capitalization. Local governments search for ways to increase the amount of revenue raised from different sources. One of their primary sources of tax revenue is taxes levied on residential properties. The question Chapter 3 attempts to answer is whether it is homeowners or homebuyers who ultimately pay property taxes. The greater the degree of capitalization, the greater the share of tax borne by homeowners. Chapter 4 evaluates the effect of the Tax Cuts and Jobs Act (TCJA) of 2017 on excess burden from owner-occupied housing. Under US tax law, homeowners can reduce their housing user costs by deducting the mortgage interest and state and local property taxes from their federal taxable income. This, however, imposes an excess burden on society by distorting the housing market’s equilibrium.