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Essays in taxation and international relations


Petrescu, Ioana Maria (2008). Essays in taxation and international relations. Master's thesis / Doctoral dissertation.


This thesis consists of three essays on taxation and international relations. The first essay investigates the effects of personal income tax progressivity on the decision to become self-employed. I develop a theoretical model of tax evading self-employed individuals who pay bribes to tax authorities. The model predicts that progressivity affects the decision to become self-employed even if people tax evade. I then test this prediction empirically using three sources of data. I find that increases in progressivity decrease the probability of choosing self-employment and decrease the number of micro enterprises. I also find that in countries with high tax evasion and frequent bribes, self-employment is less responsive to taxes than in the U.S. In the second essay, I investigate whether sanctions affect future military behavior. I look at the effects of sanctioning a country involved in a militarized dispute on the probability that the sanctioned country or any other country involved in the dispute will be involved in a militarized dispute in the future. I also look at the effects of the sanction on the probability that countries similar to the ones in the sanctioned dispute will participate in another dispute in the future. I find that countries involved in a dispute and countries similar to the ones involved in the dispute are less likely to participate in another dispute in the future if one of the countries involved in the original dispute was sanctioned. The third essay looks at the ways in which improving the financial sector leads to more revenue. I use a panel of data from 72 countries and from 14 years to test the relationship between financial sector quality and different types of tax revenue. I construct a financial indicator that encompasses measures from five areas of the financial system and show that an increase in the quality of financial intermediaries increases total tax revenue and income tax revenue as shares of GDP. My findings suggest that the quality of the financial sector does not affect the revenue collected from sales, property or gift taxes.

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Petrescu, Ioana Maria