| Historically, many U.S. states have used taxation schemes that discriminated between domestic and foreign insurance companies, such that in most cases foreign companies were charged higher tax rates than domestic companies. In the case of Metropolitan Life Insurance Company, vs. Ward (1985), the U.S. Supreme Court ruled that, for the most part, states could no longer use such discriminatory schemes. During the years following the decision, most of the discriminating states gradually unified their tax rates on domestic and foreign insurers. Using a hazard model, this study investigates what variables affected the timing of states' decision to unify their premium tax rates on foreign and domestic insurance companies. While doing so, the study assesses the relative explanatory power of two theories of regulation, the economic theory (ET), and normative analysis as a positive theory (NPT), in explaining the process of unification.; The analysis suggests that while some of the findings could be rationalized on public-interest grounds, the results as a whole are more consistent with the private-interest theory. Factors that contribute to slower tax unification include large market share by domestic companies, high intensity of domestic companies in their local market, large contribution of the insurance industry to GSP, and the number of small domestic insurers within a state. High proportion of insurance tax receipts to state tax income, and a high proportion of insurance employees to state employment, contribute to faster unification. States that elect their insurance commissioners tend to unify their rates more slowly than states with appointed commissioners, and finally, states in which the insurance industry is likely to enjoy some market power unify their tax rates more slowly. |
