Conference Agenda

Overview and details of the sessions of this online conference.

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The last speaker of each session is the session chair. The discussant is always the following speaker, with the first speaker being the discussant of the last paper. Each paper has a 22-minutes-block in all sessions. There should be 15 minutes and no more than 18 minutes for the presenter. The discussion is then started by the discussant. Please note that the role of the discussant is different compared to previous years: The discussant has only 1-2 minutes and s/he is not allowed to give a lengthy summary of the paper together with comprehensive comments. Instead, her/his task is to raise one single question/comment and, in doing so, start the general discussion! All participants are asked to be strict in timing to allow people to change sessions during the general discussion. For a (rare) session with less papers in the session than the time slot allows, stick to the congress schedule and use 22 minutes per presentation to allow listeners to smoothly change between sessions.

Only registered participants can attend this online conference. Further information available on the congress website https://iipf2021.hi.is/ .

Please note that all times are shown in the time zone of the conference. The current conference time is: 5th Dec 2021, 06:03:48pm GMT

 
 
Session Overview
Date: Wednesday, 18/Aug/2021
9:00am - 10:30amOpening and Plenary I: Keynote - Jérôme Frans Adda (Bocconi University) on "Preventing the Spread of Antibiotic Resistance"
Session Chair: Clemens Fuest, ifo Institute and IIPF
 
10:45am - 12:15pmA01: COVID and Health
 
 
10:45am - 11:07am

Food Insecurity in the US During the Pandemic: What Can We Learn from Real-time Data?

Sara Ayllón, Samuel Lado

University of Girona, Spain

We study the potential effect of the declaration of the state of emergency, the beginning and end of the stay-at-home orders, and the Economic Impact (one-time) Payments on food insecurity in the United States during the first wave of the coronavirus pandemic. We use daily data from Google Trends for the search term "foodbank" and document the development of a hunger crisis as indicated by the number of individuals needing to locate a food pantry through the internet. The demand of charitable food decreases once families start receiving the stimulus payments but, mostly, once the economic activity resumes with the lifting of the lockdown orders. Our estimates indicate that the increased need of emergency help among vulnerable families lasted at least ten weeks during the first wave of the pandemic and we argue that real-time data can be useful to predict such urgency.

Ayllón-Food Insecurity in the US During the Pandemic-446.pdf


11:07am - 11:30am

Living at the Peak: Health and Public Finance during the COVID-19 Pandemic

Dirk Foremny1, Pilar Sorribas-Navarro2, Judit Vall Castello2

1Universitat de Barcelona / I.E.B., Spain and CesIfo; 2Universitat de Barcelona / I.E.B., Spain

This paper provides novel evidence for the determinants of preferences for public health and the willingness to pay for health services using a survey experiment implemented during the third week of the lock-down in Spain. Results show a substantial deterioration of mental health, which is more pronounced in groups of the population with less stable income sources. We implement two information treatments about the fatality rate across age groups and the incidence rate across regions. In the first case, the treatment is stronger for those in, or with relatives in the risk group. Results suggest that preferences for health care expenditures have almost doubled. Furthermore, we ask respondents about their willingness to pay for one out of three randomly assigned health care improvements. Contributions for more ICU beds are significantly higher compared to medical treatments and a vaccine.

Foremny-Living at the Peak-452.pdf


11:30am - 11:52am

Fighting the Spread of Covid-19: was the Swiss Lockdown worth it?

Beatrice Retali, Nicolò Gatti

Università Della Svizzera Italiana, Switzerland

The implementation of lockdowns to control the Covid-19 pandemic has led to a strong economic and political debate. To shed light on the actual benefits of such policy, we focus on the Swiss lockdown during the first wave of infections and estimate the number of potentially saved lives. To predict the number of deaths in absence of restrictive measures, we develop a novel age-structured SIRDC model which accounts for age-specific endogenous behavioral responses and for seasonal patterns in the spread of the virus. Including the additional fatalities due to the potential shortage of healthcare resources, our estimates suggest that the lockdown prevented more than 11,200 deaths between March and the beginning of September 2020. Using the value of statistical life, we compute the corresponding monetary benefits, which exceed 32 billion francs (4.34% of the Swiss GDP) and are mainly concentrated among people older than 65.

Retali-Fighting the Spread of Covid-19-321.pdf


11:52am - 12:15pm

Does Re-opening Schools Contribute to the Spread of SARS-CoV-2? Evidence from Staggered Summer Breaks in Germany

Ingo E. Isphording1, Marc Lipfert2, Nico Pestel1

1IZA - Institute of Labor Economics, Germany; 2University of Bonn

We study the effect of the end of school summer breaks on SARS-CoV-2 cases in Germany. The staggered timing of summer breaks across federal states allows us to implement an event study design. We base our analysis on official daily counts of confirmed coronavirus infections by age groups across all 401 German counties. We consider an event window of two weeks before and four weeks after the end of summer breaks. We do not find evidence of a positive effect of school re-openings on case numbers. For individuals aged between 5-59 years, which comprise school-aged children and their parents, the end of summer breaks had a negative but insignificant effect on the number of new confirmed cases. Our results are not explained by changes in mobility patterns around school re-openings. Analyses of Google Trends data suggest that behavioral changes of parents have contributed to the containment after school re-openings.

Isphording-Does Re-opening Schools Contribute to the Spread of SARS-CoV-2 Evidence-144.pdf
 
10:45am - 12:15pmA02: Intergenerational Mobility and Student Performance
 
 
10:45am - 11:07am

Intergenerational Transmission of Welfare: Evidence from Germany

Jennifer Feichtmayer, Regina T. Riphahn

FAU Erlangen-Nürnberg, Germany

We study the intergenerational transmission of welfare receipt in Germany. We first describe the correlation of welfare receipt experienced in the parental household and subsequent own welfare receipt of young adults. In a second step, we pursue several strategies to determine whether the observed correlations reflect causal effects. We take advantage of the long running German Socio-Economic Panel Survey (1984-2019) and contribute to a very sparse literature for the German case. We apply the Gottschalk (1996) estimation approach, look at sibling fixed effects, and use instrumental variables techniques. While our finding of strong positive correlations between parental and own welfare receipt confirm the international literature first results suggest that these correlations are spurious and do not hold up to controls for unobserved heterogeneities.

Feichtmayer-Intergenerational Transmission of Welfare-307.pdf


11:07am - 11:30am

Multigenerational Mobility in India

Anustup Kundu1,2, Kunal Sen2,3

1University of Helsinki, Finland; 2UNU-WIDER, Finland; 3University of Manchester, UK

Most studies of intergenerational mobility focus on adjacent generations, and there is limited knowledge about multigenerational mobility—that is, status transmission across three generations. We examine multigenerational educational and occupational mobility in India, using a nationally representative data-set the IHDS which contains information about education and occupation for three generations. We find that mobility has increased over generations for education, but not for occupation. We also find that there are stark differences across social groups, with individuals belonging to socially disadvantaged communities in India lagging behind in social progress. Multigenerational mobility for Muslims in education and occupation have decreased in comparison to Hindus over the three generations. While we find that there is an increase in educational mobility for other disadvantaged groups such as Scheduled Castes, Scheduled Tribes, and Other Backward Classes compared to General Castes, we do not find evidence of increased occupational mobility over the three generations.

Kundu-Multigenerational Mobility in India-305.pdf


11:30am - 11:52am

Effects of Cooperative Learning on Student Performance: Evidence from Southern Thailand

Piyakul Somsiriwong

National Graduate Institute for Policy Studies, Japan

This study evaluates the effects of the Active Learning School (ALS) Project in the south of Thailand on national test scores during the period 2017–2019. Instruction in the project combines two interventions, the cooperative learning approach (CL) and professional development (PD), to improve the academic performance of students. The study provides regression discontinuity (RD) results on student performance pooled across years, grades and subjects. The results estimated from subsamples pooled across either subject and grade or subject and year are consistent with the main results. All results suggest that the project did not substantially improve student performance as measured by national test scores, since the effect sizes are very small with the 95 percent confidence interval estimates between -0.1 and 0.1 test score standard deviation. The major factors that prohibit the success of district-wide interventions are inadequate teacher training, imperfect classroom implementation, and lack of administrative support and follow-up.

Somsiriwong-Effects of Cooperative Learning on Student Performance-422.pdf


11:52am - 12:15pm

Does Reducing Income Inequality Prevent Residential Segregation?

Che-Yuan Liang1, Xiao Hu2

1Uppsala University; 2Swedish University of Agricultural Sciences

We analyze how income inequality affects residential income segregation using Swedish population data for 1991–2014. Our exceptionally extensive data allows better inference on how to prevent segregation. We find that increasing pre-tax income inequality accounts for the entire dramatic segregation surge. In particular, growing shares of low-income residents can explain rising neighborhood concentration of such residents. Our results also indicate that raising the education levels of low-income residents is effective for fighting segregation. Moreover, residential preferences for similar neighbors could rationalize segregation patterns. However, disposable income inequality, which can be affected through public redistribution, only had limited segregation effects.

Liang-Does Reducing Income Inequality Prevent Residential Segregation-114.pdf
 
10:45am - 12:15pmA03: Public Finance Theory
 
 
10:45am - 11:07am

Tax Transparency and Social Welfare: The Role of Government Commitment

Chishio Furukawa

Yokohama National University, Japan

Although transparency has long been held as the key principle of taxation, recent behavioral public finance theory has shown that it may reduce social welfare as inattention can alleviate behavioral distortions. This paper extends this analysis for Ramsey taxation by modeling inattention as a noise in the tax rate signal received by Bayesian citizens. In equilibrium, we find that transparency will improve social welfare by ensuring the government's ability to commit to a fairly low tax rate that is socially optimal. Moreover, this model yields a new sufficient statistics formula. Based on typical estimates of attention parameters and marginal cost of public funds, this formula suggests that ensuring tax transparency is worth incurring approximately 10 percent of the revenue currently estimated for the U.S. tax system.

Furukawa-Tax Transparency and Social Welfare-301.pdf


11:07am - 11:30am

Supply of Segregation, Inequality and Welfare

Lisa Windsteiger

Max Planck Institute for Tax Law and Public Finance, Germany

Why is an increase in income inequality often accompanied by an increase in socio-economic segregation? And what are the welfare implications of this co-movement? This paper uses a theoretical model to analyze the relationship between income inequality and socio-economic segregation. It shows that rising inequality can trigger sorting according to income, as a monopolist’s profits from offering sorting increase with income inequality. It also examines the relationship between sorting and social welfare and shows that profit-maximizing sorting patterns are not necessarily optimal from a welfare perspective. In fact, for a broad field of income distributions (monopolist) profits increase with inequality, while at the same time total welfare from sorting decreases.

Windsteiger-Supply of Segregation, Inequality and Welfare-225.pdf


11:30am - 11:52am

The Effects of Numeracy, Overconfidence and Risk Aversion of the Aged and Their Implications to capital Income Tax Policy in Japan

Shigeki Kunieda

Chuo University, Japan

Using a new comprehensive internet survey of aged male and female respondents in Japan, we consider the relationship of numeracy, overconfidence, risk aversion and risk asset investment and its implications for capital income tax policy in Japan. Numeracy decreases with age after early 60s. Educated older men tend to be overconfident about their numeracy. Numeracy and overconfidence reduce absolute risk aversion. Individuals with higher numeracy, more overconfidence and higher education tend to have risk assets in their household portfolio.

With consideration to the decline of numeracy of the aged and possible excess risk taking due to overconfidence , it is not desirable to encourage risk asset investment of the aged by special preferred tax treatment in Japan.

Kunieda-The Effects of Numeracy, Overconfidence and Risk Aversion of the Aged and Their Implications-436.pdf


11:52am - 12:15pm

Redistribution, Distortion and Implementation: Unpacking the Optimal Two-Dimensional Tax Schedule

Kevin Spiritus1, Floris Zoutman2

1Erasmus University Rotterdam, The Netherlands; 2NHH Norwegian School of Economics, Norway

We analyze the optimal marginal excess burdens for the nonlinear taxation of two-dimensional incomes when households have multidimensional characteristics. We show that the optimal marginal excess burdens can be decomposed into two terms. The first component is a distributional characteristic for the income under consideration: the larger is the (negative) local covariance between the income and the welfare weights, the higher will be the optimal marginal excess burden. This component guarantees that the combination of marginal excess burdens is among the many to comply to the divergence equation found by Golosov et al. (2015). The second component guarantees that the combination of marginal excess burdens is the unique solution that can be implemented using a tax function. This term also captures the further distortions caused by the reform used to construct the distributional characteristic. We use simulations to show the relative importance of each term.

Spiritus-Redistribution, Distortion and Implementation-239.pdf
 
10:45am - 12:15pmA04: Corporate Tax and Investment
 
 
10:45am - 11:07am

Tax Depreciation and Investment Decisions: Evidence from the Leasing Sector

Lisa Hillmann, Andreas Oestreicher

University of Goettingen, Germany

This paper examines the investment response of finance lease firms to a change in tax depreciation rules. Using an exogenous shock in Germany, our results suggest that finance lease companies, the only organisations affected by such a change, reduce their investments following the abolition of a beneficial and long-standing tax depreciation method. We provide evidence that the exposure of finance lease firms to regulatory requirements moderates the investment effect. Additional cross-sectional tests indicate a larger investment response for finance lease firms with a product portfolio specialised in mobile assets and, in particular, office and IT assets. Our findings add to the existing contributions on the effect of tax depreciation on investment decisions and to the limited literature looking into the effect of taxation on financial institutions.

Hillmann-Tax Depreciation and Investment Decisions-382.pdf


11:07am - 11:30am

Direct, Spill-Over and Welfare Effects of Place-Based Policies: Evidence from Investment Subsidies in East Germany

Nils Wehrhöfer1,2, Sebastian Siegloch1,2, Tobias Etzel3

1University of Mannheim; 2ZEW; 3Bundesbank

We study the effects of investment subsidies targeted at East German manufacturing firms post reunification. Exploiting quasi-experimental variation in the regional subsidy rates and administrative employer-employee data, we estimate the causal reduced-form policy effects. We show that a 1 percentage point decrease in the subsidy rate leads to 1 percent decrease in manufacturing employment and an increase in local unemployment. Moreover, we analyze various spill-over effects. While we do not find significant regional spill-overs within the commuting zone, we demonstrate significant local multiplier effects as the untreated construction and retail sectors are also negatively affected by the subsidy cut. Last, we assess the welfare implications of the policy by calculating the marginal value of public funds. The specific place-based policy is comparable to policies targeted at similar age groups, like unemployment insurance. Without accounting for spill-overs, the welfare effects of the policy are significantly lower.

Wehrhöfer-Direct, Spill-Over and Welfare Effects of Place-Based Policies-341.pdf


11:30am - 11:52am

Take-Up of Investment Incentives in the Euro-Area: Evidence from Finland

Elina Berghäll

VATT, Finland

To reinvigorate sluggish economic growth, the Finnish government readopted investment incentives allowing for accelerated depreciation of productive investments in 2013 – 2016. With access to detailed comprehensive firm balance sheet data on Finnish firms, the YRTTI database, I explore take-up of the accelerated depreciation allowances (ADA) on machinery and equipment investments in manufacturing. Relative to most results reported in the literature, my results show very low take-up reaching at most 5 % of the number of investments. Nevertheless, instrumental variables regressions show the ADA to have significantly raised investment. ADA has been used for large investments especially by profitable, large, exporting and/or high value-added firms. Hence, there appears to be a threshold to the ADA take-up, unrelated to awareness but rather to firm tax and financial capabilities and the effective size of the incentive.

Berghäll-Take-Up of Investment Incentives in the Euro-Area-398.pdf


11:52am - 12:15pm

The Effect of Foreign Dividend Exemption on Profit Repatriation through Dividends, Royalties, and Interest: Evidence from Japan

Makoto Hasegawa1, Michi Kakebayashi2

1Kyoto University, Japan; 2Policy Research Institute, Ministry of Finance, Japan

In 2009, Japan introduced a foreign dividend exemption system (or so-called territorial tax system) that exempted dividends received by Japanese firms from their foreign affiliates from home-country taxation. This paper examines the effects of this tax reform on profit repatriation through dividends, royalties, and interest. Under the foreign dividend exemption system, Japanese multinationals can save the tax costs of profit repatriation by repatriating dividends from foreign affiliates located in countries that impose low withholding tax rates on dividends. We find that, in response to the 2009 tax reform, Japanese-owned foreign affiliates subject to lower withholding tax rates on dividends increased dividend payouts, reduced royalties, and did not change interest payments to their parent companies. Those affiliates increased total payments to their parents. These results suggest that the affiliates partly switched their means of profit repatriation from royalties to dividends with the enactment of the foreign dividend exemption system.

Hasegawa-The Effect of Foreign Dividend Exemption on Profit Repatriation through Dividends, Royalties, and.pdf
 
10:45am - 12:15pmA05: Interjurisdictional Taxation
 
 
10:45am - 11:07am

Anthropogeography And Taxation

David Agrawal1, Mohammed Mardan2

1University of Kentucky, USA; 2Norwegian School of Economics (NHH), Norway

The common view is that bigger jurisdictions set higher tax rates than smaller jurisdictions. Most tax competition models assume that the cost of tax arbitrage is uniformly distributed and the tax base is only mobile between two jurisdictions. We overturn this conventional result by relaxing these (unrealistic) assumptions, but still assuming that the only source of heterogeneity is due to population differences. Applied to a model of commodity taxes, we show that the more people are living near borders, the lower will be a jurisdiction's tax rate. Empirically, we exploit changes over time and space of the population of a jurisdiction. Increases in the number of people living near borders lowers tax rates, and after accounting for this, changes in total population have little effect on tax rates. Our application extends to capital tax competition or profit taxation when moving costs are not uniformly distributed across firms.

Agrawal-Anthropogeography And Taxation-372.pdf


11:07am - 11:30am

Quality Upgrading for Tax Avoidance

Hirofumi Okoshi

Okayaya University, Japan

Governments sometimes incentive firms to upgrade their quality of goods but such a policy

makes it difficulty to collect tax revenue from multinational enterprises (MNEs) because the

application of the arm’s length principle is hard. Thus, with tax avoidance opportunities, results of the optimal policy for R&D is in question. This paper links the innovation for quality upgrading with profit shifting. As the opportunities of tax avoidance increases gains from an MNE’s investment in quality, it contributes to quality upgrading, which spillovers to a local firm. Moreover, the optimal policy for firms’ investment is to give subsidy without profit shifting, which is in line with Toshimitsu (2003). However, the optimal policy is to impose tax on R&D activities if profit shifting is easy and does not cost the MNE a lot.

Okoshi-Quality Upgrading for Tax Avoidance-296.pdf


11:30am - 11:52am

The Anatomy of a Global Network of Multinationals: The Case of Japan

Kozo Kiyota

Keio University, Japan

Multinational enterprises (MNEs) control their foreign subsidiaries not only directly from their headquarters but also indirectly through other foreign subsidiaries. To investigate potential investment and profit flows between countries, it is essential to capture the global network of MNEs. However, little is known about the network structure {\it within a firm between countries}. In this paper, we first theoretically characterize PageRank centrality in an economic analysis. Then using unique comprehensive data on Japanese companies ranked in the top 100 nonfinancial MNEs in the world, we empirically show that simple measures of network analysis help us to identify the degree of indirect foreign direct investment (FDI), potential special purpose entities, and the potential channels of investment and profit flows between countries.

Kiyota-The Anatomy of a Global Network of Multinationals-155.pdf


11:52am - 12:15pm

Minimum Tax Standards for International Corporate Taxation and Tax Enforcement

Jean Hindriks1, Yukihiro Nishimura2,3

1CORE (LIDAM) and Economics School of Louvain, Universite catholique de Louvain; 2Osaka University, Japan; 3CESifo, Germany

Minimum taxation means that if a multinational enterprise (MNE) declares its operations in a jurisdiction taxing less than the minimum tax, the countries where the real economic activity takes place would have the right to tax the difference. There is a revival of the minimum tax standard for two reasons. First, there is concern about the complexity of assigning taxing rights and the effectiveness of profit-splitting rules in eliminating profit shifting. Second, the minimum tax standard has the merit of tackling multinational tax avoidance at its root. However, this argument ignores the interaction between minimum taxation and tax enforcement incentive. Building upon Hindriks and Nishimura (2021), we develop a framework in which effective tax compliance requires enforcement cooperation between countries (e.g. exchange of information). We show that under certain circumstances, minimum taxation may induce the low tax countries to abandon enforcement cooperation unilaterally.

Hindriks-Minimum Tax Standards for International Corporate Taxation and Tax Enforcement-161.pdf
 
10:45am - 12:15pmA06: Retirement and Disability Insurance
 
 
10:45am - 11:07am

Welfare Effects of Pension Reforms

Andreas Haller

Norwegian School of Economics, Norway

In almost all developed countries, policy makers have implemented pension reforms by increasing statutory retirement ages, lowering pension levels and/or adjusting pension formulas to address demographic change. This paper provides a novel, unifying framework to evaluate the welfare effects of such pension reforms. I show that the welfare effect of a pension reform crucially depends on the fiscal multiplier -- the total fiscal effect divided by the mechanical fiscal effect. Empirically, I exploit a series of pension reforms in Austria. I find that increasing the early retirement age has a multiplier of 1 while reducing pension levels generates a multiplier of 1.5. Based on my estimates, a social planner with preferences for redistribution clearly favors reducing pension levels over increasing the early retirement age.

Haller-Welfare Effects of Pension Reforms-320.pdf


11:07am - 11:30am

Saving For Retirement Through The Public Pension System: Evidence From The Self-Employed In Spain

Ander Iraizoz

Paris School of Economics, France

Using the fact that the Spanish self-employed voluntarily choose their contributions to Social Security, I study the effect of financial incentives on public pension savings for self-employed workers in Spain. For this, I implement a difference-in-differences approach exploiting the change in public pension saving incentives induced by the 1997 pension reform. I find that the Spanish self-employed significantly respond to the financial incentives for public pension savings. However, the estimated response could be considered modest relative to the magnitude of the return to contributions provided by pension formulas in Spain. I provide evidence suggesting that the lack of salience of the return to contributions could be one of the main drivers of such a modest response, highlighting the importance of information and salience on the responsiveness of self-employed workers to saving incentives.

Iraizoz-Saving For Retirement Through The Public Pension System-107.pdf


11:30am - 11:52am

Spousal Spillovers in Retirement: A Structural Assessment

Sigurd Galaasen1, Herman Kruse2

1Norges Bank, Norway; 2Statistics Norway

This paper provides a quantitative analysis of the impact of joint retirement on aggregate labor supply elasticities. We extend a standard life-cycle retirement model by incorporating dual-earner households with heterogeneous age gaps and non-separable leisure preferences. To structurally estimate the degree of non-separability we exploit recent quasi-experimental reduced form evidence of spousal retirement spillover effects, from a major Norwegian pension reform. We find evidence of considerable leisure complementaries. Despite large age disparity between spouses, the estimated model importantly generates a high degree of joint retirement, in line with the pattern observed in the data. By solving for the long-run impact of the Norwegian reform we show that leisure complementarity is also quantitatively important. Comparing our estimated model to a model with separability in leisure we find that complementarity accounts for one-third of the reform-induced long-run increase in old-age labor supply.

Galaasen-Spousal Spillovers in Retirement-508.pdf


11:52am - 12:15pm

Privatizing Disability Insurance

Arthur Seibold1, Sebastian Seitz1, Sebastian Siegloch1,2

1University of Mannheim, Germany; 2ZEW Mannheim, Germany

In light of rising expenditure, social insurance programs face pressure to cut back their generosity to remain sustainable. Such reforms are often accompanied by the idea that individuals can obtain private insurance. In this project, we investigate how the private disability insurance (DI) market responds to a large change in public DI in Germany. Using a combination of administrative data on public DI claims and data from a large private insurance provider, we analyze the reform of 2001, which abolished a type of public DI for younger birth cohorts. We document that the private DI market multiplies in size after the reform. Results from a difference-in-difference strategy suggest a significant causal effect on private DI coverage among affected individuals. Yet, the estimated post-reform coverage rate remains modest. Moreover, we find that the share of privately insured individuals is lower among those with higher occupational disability risk and with lower income.

Seibold-Privatizing Disability Insurance-387.pdf
 
10:45am - 12:15pmA07: Behavioral Public Economics
 
 
10:45am - 11:07am

Can Moral Reminders Curb Corruption? Evidence from an Online Classroom Experiment

Corinna Claus1, Ekkehard Koehler2, Tim Krieger1

1University of Freiburg, Germany; 2Walter Eucken Institute

Using an incentivized online classroom experiment, we assess the effectiveness of deontological vs. consequentialist moral reminders. Participants were told to be the responsible public servant for acquiring Covid-19 vaccine, providing them with the opportunity to generate some extra private income by accepting a bribe. Our findings indicate that a deontological moral reminder ("corruption is immoral!") leads to a significant reduction of accepting bribes. A consequentialist moral reminder, pointing out that bribes are costly to taxpayers, has no significant effect. Our experiment was conducted before and after the announcement of BionTech/Pfizer on November 9, 2020 that they will be able to provide an effective Covid-19 vaccine. This announcement correlates with a higher level of bribe-taking.

Claus-Can Moral Reminders Curb Corruption Evidence from an Online Classroom Experiment-427.pdf


11:07am - 11:30am

Is Meat Too Cheap? Towards Optimal Meat Taxation

Franziska Funke1, Linus Mattauch2, Inge van den Bijgaart3, Charles Godfray2, Cameron Hepburn2, David Klenert4, Marco Springmann2, Nicolas Treich5

1Potsdam Institute for Climate Impact Research and TU Berlin; 2University of Oxford; 3University of Gothenburg; 4Joint Research Centre of the European Commission; 5Université Toulouse Capitole, Toulouse School of Economics

Advances in environmental science and economics permit us to conclude that meat is significantly underpriced. While livestock plays a significant role in climate change and negatively impacts global nitrogen cycles and ecosystem biodiversity, economically efficient policies for regulating meat production and consumption are under-researched. In the absence of first-best policy instruments for the livestock sector, meat taxes can address multiple environmental externalities simultaneously, while improving diet-related public health. We review the empirical basis for the ‘social costs of meat’ and study several elements from public, behavioural and welfare economics, which could motivate regulatory efforts to tax meat in high-income countries: (i) multiple environmental externalities, (ii) adverse effects on one’s own health, (iii) animal welfare, (iv) learning curves for 'alternative protein technologies', and (v) distributional effects.

Funke-Is Meat Too Cheap Towards Optimal Meat Taxation-485.pdf


11:30am - 11:52am

The Words that Keep People Apart. Official Language, Accountability and Fiscal Capacity

Adelaide Baronchelli1, Alessandra Foresta2, Roberto Ricciuti1

1University of Verona, Italy; 2University of York

This paper empirically evaluates the impact of accountability on fiscal capacity. We maintain that if the average citizen speaks a language different from the central government and the elite, she will find it difficult/impossible to hold the government to account. As a result, this will negatively affect fiscal capacity. We adopt an instrumental variable approach using, as an instrument, the measure of how far the official language differs from ordinary language. The first stage results suggest that this instrument is strong and reliable and is negatively correlated with our measure of accountability in line with the hypothesis. The results in the second stage support our hypothesis. The results are robust to plausible exogeneity tests and different specifications.

Baronchelli-The Words that Keep People Apart Official Language, Accountability and Fiscal Capacity-241.pdf


11:52am - 12:15pm

Fear and Loathing in Times of Distress: Causal Impact of Social and Economic Insecurity on Anti-Immigration Sentiment

Willem Sas1,6, Gianmarco Daniele2,3, Francesco Passarelli2,4, Andrea Martinangeli5, Lisa Windsteiger5

1University of Stirling; 2Bocconi University; 3University of Turin; 4University of Milan; 5Max Planck Institute for Tax Law and Public Finance; 6KU Leuven

The causal nexus between socio-economic stressors and anti-immigration sentiments remains unclear despite increasing evidence over their correlation. We exploit the social and economic disruptions brought about by the epidemic outbreak in March 2020 to randomly provide survey respondents with, at the time of the online survey, pessimistic information about the economic and health consequences of the epidemic. Both economic and social stressors causally induce upsurges in anti-immigration sentiment and the perception of being overtaxed. However, radicalised attitudes are accompanied by political radicalisation only when the negative economic consequences of the epidemic are highlighted. Our theoretical model unpacks our findings alongside the health- and economic dimensions of the crisis. The probabilities of contagion and injury are proposed as the main channels driving our results, which is also confirmed by our survey experiment.

Sas-Fear and Loathing in Times of Distress-318.pdf
 
12:30pm - 2:00pmB01: Political Economy I
 
 
12:30pm - 12:52pm

Public Goods and Diversity in Democracies and Non-Democracies

Roxanne Raabe1, Christian J. Sander1, Andrea Schneider2

1University of Münster, Germany; 2Jönköping International Business School, Sweden

This paper analyzes how ethnic diversity affects the provision of public goods in democratic and non-democratic societies where political parties compete for voters' support by offering a mix of private and public goods. We show that increasing ethnic diversity reduces the provision of public goods in democracies but has no similar effect in non-democracies. We can confirm our hypothesis measuring the provision of public goods with government expense, expenditure for health and life expectancy. Other proxies measuring the provision of public goods (e.g., infant mortality or safe water) do not provide evidence that the link between ethnic diversity and public good provision depends on the political regime.

Raabe-Public Goods and Diversity in Democracies and Non-Democracies-291.pdf


12:52pm - 1:15pm

Democratic Redistribution with Plutocratic Feedback Loops

Dylan T. Moore

University of Michigan

In a democratic society where economic inequality and political inequality are mutually reinforcing, is plutocracy inevitable? I explore this question using a simple dynamic model of democratic redistribution. Two candidates iteratively compete in elections fought over redistributive policy. Campaign spending is financed by citizen political donations, creating a feedback loop through which the current distribution of income affects the future distribution. The impact of these plutocratic feedback loops depends on assumptions about citizen political and economic behavior, as well as campaign spending technology. Long run convergence to a plutocratic equilibrium can occur for arbitrarily small levels of initial economic inequality. However, the opposite scenario is also possible: a society which is initially extremely unequal may nonetheless be destined for egalitarianism. The long run distribution of income may also exhibit extreme sensitivity to initial conditions. Tiny differences in initial inequality can determine whether democratic redistribution induces or prevents plutocracy.

Moore-Democratic Redistribution with Plutocratic Feedback Loops-381.pdf


1:15pm - 1:37pm

Protectionism and Economic Growth: Causal Evidence from the First Era of Globalization

Fabian Ruthardt1, Niklas Potrafke1, Kaspar Wüthrich2

1ifo Institute, Germany; 2University of California San Diego

We investigate how protectionist policies influence short-run economic growth. Our empirical strategy exploits an extraordinary tax scandal that gave rise to an unexpected change of government in Sweden. A free-trade majority in parliament was overturned by a protectionist majority in 1887. We employ the synthetic control method to select control countries against which economic growth in Sweden can be compared. We do not find evidence suggesting that protectionist policies influenced economic growth and examine channels why. Tariffs increased government revenue. However, the results do not suggest that the protectionist government stimulated the economy by increasing government expenditure.

Ruthardt-Protectionism and Economic Growth-375.pdf


1:37pm - 2:00pm

Impact of European Cohesion Policy on regional growth: _When time isn't money_

Benoit Dicharry

University of Strasbourg, France

This paper contributes to the literature discussing the effects of the EU Funds on GDP growth by revealing the causal impact of regional absorption's speed. The analysis is conducted using a regression discontinuity design approach with heterogeneous treatment on NUTS-2 regions during the period 2000-2016. We show that a faster absorption, especially in the Mediterranean regions, is associated with worse economic outcomes of the Objective 1 treatment. These estimation results are robust to changes in specifications, sample compositions and outcome variables. Our results imply that the incentives provided by the European Commission to fasten absorption have a counter-productive impact.

Dicharry-Impact of European Cohesion Policy on regional growth-118.pdf
 
12:30pm - 2:00pmB02: Inequality
 
 
12:30pm - 12:52pm

Wealth and its Distribution in Germany, 1895-2018

Charlotte Bartels1, Thilo Albers2, Moritz Schularick3

1German Institute for Economic Research (DIW), Germany; 2Humboldt University, Germany; 3University of Bonn, Germany

This paper presents the first comprehensive study of the long-run evolution of wealth inequality in Germany combining tax data, surveys, national accounts and rich lists. We show that the concentration of wealth in the hands of the top 1% has fallen by half, from close to 50% in 1895 to less than 25% today. Since unification, two off-setting trends have shaped the German wealth distribution. Households at the top made substantial capital gains from rising equity valuations that were counterbalanced by large middle-class capital gains from rising house prices and high middle class savings. However, these asset price induced gains in business and housing wealth almost entirely by-passed households in the bottom half of the wealth distribution so that the wealth gap between the bottom and the upper half has widened significantly. Finally, we also show that official statistics underestimate privately held German business wealth and real estate wealth.

Bartels-Wealth and its Distribution in Germany, 1895-2018-383.pdf


12:52pm - 1:15pm

A Safe Harbor: Wealth-Income Ratios in Switzerland over the 20th Century and the Role of Housing Prices

Enea Baselgia1, Isabel Z. Martinez2

1University of St.Gallen, Switzerland; 2ETH Zurich, Switzerland

We estimate the ratio of private wealth to national income, βpt, for Switzerland over the period 1900–2018. Our results indicate that the development of βpt in Switzerland did not follow a U-shaped pattern as in most European countries, but that the evolution was extraordinarily stable, with βpt oscillating around 500% over most of the 20th century. How- ever, the wealth-income ratio has been on the rise since the turn of the century to reach 721% in 2017—an unprecedented level in the past. This considerable increase is mainly driven by large capital gains in housing wealth since 2010. We present new cross-country evidence that capital gains in housing wealth have become an important driver of rising wealth-income ratios in a series of developed economies.

Baselgia-A Safe Harbor-469.pdf


1:15pm - 1:37pm

Redistribution of Return Inequality

Karl Schulz

University of Mannheim, Germany

The rich obtain higher returns than the poor. How should the tax system account for this return inequality? I study capital taxation in an economy in which returns correlate with ability and wealth, giving rise to type and scale dependence. Whereas an increase in type dependence raises optimal capital taxes, more scale dependence provides a rationale for lower tax rates, making the policy implications of return inequality non-trivial. Aside from amplifying capital inequality, scale dependence generates an inequality multiplier effect between wealth and its returns, raising standard capital elasticity measures. At an aggregate level, a rise in redistribution induces a compression effect on the distribution of pre-tax returns. In a financial market microfoundation, I identify general equilibrium trickle-up externalities that call for more redistribution relative to the partial equilibrium. Finally, I provide macro and micro estimates of the novel sufficient statistics and demonstrate their quantitative importance.

Schulz-Redistribution of Return Inequality-159.pdf


1:37pm - 2:00pm

Homoploutia: Top Labor and Capital Incomes in the United States, 1950—2020

Yonatan Berman1,2, Branko Milanovic2,3

1London Mathematical Laboratory; 2Stone Center on Socio-Economic Inequality, The Graduate Center, CUNY; 3International Inequalities Institute, London School of Economics

Homoploutia describes the situation in which the same people have both high capital and labor income in some country. It can be quantified by the share of capital-income rich who are also labor-income rich. We combine several datasets covering different time periods to document the evolution of homoploutia in the United States from 1950 to 2020. We find that homoploutia was low after World War II, has increased by the early 1960s, and then decreased until the mid-1980s. Since 1985 it has been sharply increasing: In 1985, about 17% of adults in the top decile of capital-income earners were also in the top decile of labor-income earners. In 2018 this indicator was about 30%. This makes the traditional division to capitalists and laborers less relevant today. We also find that rising homoploutia accounts for about 20% of the increase in total income inequality in the United States since 1986.

Berman-Homoploutia-128.pdf
 
12:30pm - 2:00pmB03: Tax Havens
 
 
12:30pm - 12:52pm

Tax Haven Activities and Tax Liabilities of Multinational Firms in a Cross-country Setting

Henrik Svensli

NHH Norwegian School of Economics, Norway

This paper investigates the effect of tax haven activities on the effective tax burden of corporate groups in a cross-country setting. Using consolidated accounting data and ownership records from the historical Orbis database between 2007 and 2016, we find that taxes paid at the consolidated firm-level decreases with tax haven activities. Measuring tax haven activities as the percentage of tax haven affiliates to the total amount of foreign affiliates, a one percentage point increase in tax haven activities reduces the ratio of tax liabilities to pre-tax earnings (total assets) by 2.37 (0.07) percentage points. However, after controlling for firm-specific fixed effects the results are no longer significant. These results shed an interesting light on the previous literature that have neglected such unobserved firm characteristics. When using dummy variables to capture the extent of tax haven activities we find that firms benefit from a considerable presence in tax havens.

Svensli-Tax Haven Activities and Tax Liabilities of Multinational Firms-346.pdf


12:52pm - 1:15pm

Who Benefits From Domestic Firms’ Use Of Tax Havens?

Annette Alstadsæter1, Julie Brun Bjørkheim1, Ron Davies2, Johannes Scheuerer2

1Norwegian University of Life Sciences, Norway; 2University College Dublin, Ireland

Although tax-motivated profit shifting reduces the corporate tax base in high-tax countries and impacts government revenues, it is unlikely that this is the only significant impact profit shifting has. This paper focuses on the relationship between the utilization of tax havens and employee compensation. Put bluntly, if a firm saves money by not paying taxes, whose pocket is that money ending up in? We investigate this issue from multiple directions using data from Statistics Norway from 2008 onwards, where we match employee, firm, and international transactions. We define a tax haven firm in three different ways: i) cash transactions to a tax haven, ii) import of services from a tax haven, including rent payment for IP, iii) being majority-owned by a foreign shareholder. Preliminary results suggest that tax haven firms pay overall higher wage compensation to all employees but that the effect is most substantial among the already high earners.

Alstadsæter-Who Benefits From Domestic Firms’ Use Of Tax Havens-218.pdf


1:15pm - 1:37pm

Tax Haven, Pollution Haven or Both ?

Emmanuelle Taugourdeau1, Thierry Madiès2, Tarola Ornella3

1CNRS, CREST, France; 2University of Fribourg; 3University of Rome La Sapienza

This paper studies the interplay between a poor and a rich country when they compete sequentially over corporate taxes and environmental regulations to attract imperfectly mobile firms. Generally, the poor country undercuts the rich country in terms of corporate taxes and chooses to be both a tax and pollution haven when it is less concerned about the environment than the rich country is and capital integration is low. However, it rarely does better in terms of welfare than the rich country. Finally we find that tax competition immunizes countries against the detrimental effect of globalization on environmental standards.

Taugourdeau-Tax Haven, Pollution Haven or Both -156.pdf


1:37pm - 2:00pm

The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance

Arjan Lejour1,2

1Tilburg University, Netherlands, The; 2CPB Netherlands Bureau for Economic Policy Analysis

Reviewing the most important studies on global revenue losses of corporate tax avoidance, I asess that a median estimate is about 150 billion dollars. This includes the quantitative effects of debt and IP-shifting and transfer pricing. Treaty shopping could lead to lower tax revenues on dividends, interest, and royalties by about 45 billion dollars. Moreover, I will show that traditional tax havens and conduit countries have different economic and tax characteristics (to some extent). This also requires different (international) policy solutions Finally, I assess quantitatively the role of tax havens and conduit countries in international corporate tax avoidance taking account of phantom investment. Tax havens are responsible for a substantial part of corporate tax avoidance, but an even larger part is due to different tax arrangements between ‘normal’ countries. Conduit countries facilitate tax avoidance but are often only one link in the country chain of international tax planning.

Lejour-The Role of Conduit Countries and Tax Havens in Corporate Tax Avoidance-226.pdf
 
12:30pm - 2:00pmB04: Enforcement
 
 
12:30pm - 12:52pm

Do Think Twice, it's Alright: Effects and Mechanisms of Tax Enforcement Policies

Andreas Kotsadam1, Knut Løyland2, Oddbjørn Raaum1, Gaute Torsvik3, Arnstein Øvrum2

1The Frisch Centre, Norway; 2Norwegian Tax Authorities; 3University of Oslo

Audits have lasting effects on subsequent behavior among audited tax payers but there is limited empirical evidence on why that is. Using a large scale randomized controlled trial with 15.000 high risk tax filers we compare the effectiveness of a desk based correspondence audit and a letter encouraging tax filers to take a second look at their self-reported deductions. We find that both interventions lower deductions and the effects are both large and lasting. We subsequently sent out a survey to the tax filers and find that only the audits affect the perceived risk of future audits, and even for that group, the increase in perceived audit risk is too small to explain the effect of the audit.Hence, a substantial part of the treatment effect goes via other channels such as improved knowledge about tax rules.

Kotsadam-Do Think Twice, its Alright-169.pdf


12:52pm - 1:15pm

Do Collateral Sanctions Work?: Evidence from the IRS' Passport Certification and Revocation Process

Paul R. Organ1, Alex Ruda2, Joel Slemrod1, Alex Turk2

1University of Michigan, United States of America; 2Internal Revenue Service

According to Allingham and Sandmo (1972), tax evasion is constrained by the threat of detection and punishment. Traditionally, the punishment for evasion has been financial and, occasionally, imprisonment. But there is a third tool, collateral sanction, which to date has received little attention. We address that gap by examining a new U.S. initiative restricting passport access to tax debtors. Focusing first on taxpayers denied a passport-related request, we examine behavior before and after request denial, compared to a control group, to estimate the direct effect of the denial. We then use an RCT embedded in the program rollout to identify the effect of certification on the larger set of taxpayers subject to passport certification. We also consider the potential for additional indirect effects. We find that denied passport requests have an immediate positive effect on compliance actions for many individuals. We find smaller but still meaningful effects of certification overall.

Organ-Do Collateral Sanctions Work-265.pdf


1:15pm - 1:37pm

Reporting Under Ignorance - Is It A Lie If I Don't Know?

Sven Arne Simon

Max Planck Institute for Tax Law and Public Finance, Germany

We study self-serving reporting behavior when people are ignorant on whether they are dishonest or telling the truth. We argue that the costs of making a (potentially) dishonest report under ignorance are smaller than the behavioral costs of a deliberate lie. In our laboratory reporting task, subjects are either eligible to a high payoff or a low payoff. One dimension varies the available information on the eligibility to payoffs, and the other dimension the ex-ante probability distribution of payoffs. Ignorance on the eligibility to payoffs leads to a pronounced increase in the fraction of unjustified claims of the high payoff. While the probability dimension has only a small effect per se, the combination with ignorance is detrimental for truthful reporting. Further results indicate that most subjects are information seeking when having the opportunity to choose the preferred information regime and that social norms for reporting under ignorance are highly controversial.

Simon-Reporting Under Ignorance-539.pdf


1:37pm - 2:00pm

Threshold Targeting, Misreporting and Adjustment Costs: Evidence from a Third-Party Reporting Policy

Panayiotis Nicolaides

Hertie School, Berlin, Germany

I study the behaviour of taxpayers in response to a novel third-party reporting policy that incentivises electronic spending in the entire population. In 2017, the personal tax allowance in Greece became conditional on spending by electronic means, up to a maximum threshold determined by taxable income. I develop a labour supply model, which predicts threshold-targeting either by increasing electronic consumption or by misreporting. Using a unique administrative dataset, I document (a) 92% reporting on or beyond threshold, (b) evidence of misreporting through bunching at round numbers, (c) economically and statistically significant increases in electronic consumption, as taxpayers attempt to reach their thresholds. I propose an explanation for this pattern of behaviour: an interplay of policy inattention, liquidity constraints and perceived audit costs shapes the final outcome. The results provide insights regarding taxpayers’ responses to third-party reporting policies, the role of adjustment costs and the use of information technology in taxation.

Nicolaides-Threshold Targeting, Misreporting and Adjustment Costs-406.pdf
 
12:30pm - 2:00pmB05: Strategic Interactions
 
 
12:30pm - 12:52pm

A Race to the Top? Staggered Electoral Cycles and Strategic Interactions in Business Taxes

Sebastian Garmann

Bundesrechnungshof, Germany

Many theories predict strategic interactions in setting taxes across neighboring jurisdictions, but few papers use quasi-experimental settings for causal empirical evidence. This paper exploits staggered elections, which create variation in neighbor’s tax rates that is driven by election-year manipulations rather than reverse causality or spatially correlated omitted variables. Municipalities only mimic the tax rate increases that occur in their neighbor’s post-election years, but not the tax rate decreases that occur in election years. Consistent with yardstick competition, tax increases in neighboring municipalities create a window of opportunity for politicians to implement fiscally necessary tax increases in their own municipalities.

Garmann-A Race to the Top Staggered Electoral Cycles and Strategic Interactions-294.pdf


12:52pm - 1:15pm

Vertical Fiscal Imbalance and Regional Competition: A spatial data analysis

Jiakai Zhang1, Timothy Goodspeed1,2

1The Graduate Center, The City University of New York; 2Hunter College, The City University of New York

This paper adds to the literature by examining fiscal competition and deficit financing by local governments in a developing country, China. We examine a unique revenue source in China, land-use premiums (a type of property tax), in a panel dataset consolidated at the prefectural level from 2006 to 2016. Our results indicate that fiscal competition in land-use premiums exists and is stronger among wealthier than poorer local governments, a result that supports the view of Cai and Triesman (2005) that competition among asymmetrically endowed regions can lead to less discipline. Moreover, we find higher local deficits are associated with lower land-use premiums, a result that suggests that the local government does not fill any fiscal gap with own revenues.

Zhang-Vertical Fiscal Imbalance and Regional Competition-360.pdf


1:15pm - 1:37pm

Taxes, Commuting and Spillover in the Metropolis

Tidiane Ly

Universita della Svizerra italiana, Switzerland

This paper studies local governments' public policies in a metropolitan area plagued by commuting-induced congestion, where both residents and workers consume local public goods. We develop a new spatial sub-metropolitan tax competition model which features a central city surrounded by suburban towns linked by mobile capital and mobile residents who commute to work. We show that Pareto-efficiency is achieved if towns can retain their workers using labor subsidies. Otherwise, traffic congestion in the city is inefficiently high and local governments respond by setting inefficient public policies:

(i) the city over-taxes capital and under-taxes residents, which leads to too little capital and too many residents in the city;

(ii) local public goods are under-provided in the city and over-provided in the towns.

Ly-Taxes, Commuting and Spillover in the Metropolis-447.pdf


1:37pm - 2:00pm

Tax Competition Effects Of A Minimum Tax Rate: Empirical Evidence From German Municipalities

Thiess Büttner1,2, Maximilian Pöhnlein1

1Friedrich-Alexander Universität Erlangen-Nürnberg, Germany; 2CESifo

This paper explores the effects of a minimum tax rate on the tax rate distribution of a local business tax. We test whether and how competing municipalities responded to the introduction of a federal law that required low-tax municipalities in Germany to set a tax rate of at least 10% on firms' taxable profits. We use a spatial econometric approach that enables us to distinguish treated and not-treated municipalities based on the distance to jurisdictions that were forced to increase their tax rate. Our results show that most municipalities did not change their tax policy in response to a law-induced tax rate change in their local neighborhood. Significant treatment effects are only found for high-tax municipalities which responded by setting lower tax rates.

Büttner-Tax Competition Effects Of A Minimum Tax Rate-419.pdf
 
12:30pm - 2:00pmB06: Issues in International Taxation
 
 
12:30pm - 12:52pm

Investing in Tax Avoidance

Katarzyna Bilicka1, Michael P. Devereux2, Irem Guceri3

1Utah State University; 2Oxford University, United Kingdom; 3Oxford University, United Kingdom

This paper studies the optimisation frictions that affect the cost of profi t shifting for multinational companies. Using con dential UK corporate tax returns data for the years 2000 to 2015, we analyse the effects of foreign tax rate cuts on the extensive and intensive margins of profi t reporting in the UK. We show that profi ts of multinational fi rms operating in the UK do not react to tax rate changes in their home countries at the intensive margin. Instead, our reduced form evidence shows large extensive margin responses, providing evidence for the presence of fi xed costs related to pro t shifting. We build a model which accounts for those fixed costs and we estimate the extent of shifting frictions alongside the intensive and extensive margin elasticities of taxable profi t.

Bilicka-Investing in Tax Avoidance-184.pdf


12:52pm - 1:15pm

Tax-Induced Transfer Pricing and Corporate Agency Costs

Michael Stimmelmayr1, Marko Koethenbuerger2

1University of Bath, United Kingdom; 2D-MTEC, ETH Zuerich

Corporate agency conflicts are widespread, but their relations to taxation are rarely explored. The paper analyzes the implications of tax-induced transfer pricing when corporate agency problems between the headquarter and division managers of a multinational enterprise (MNE) exist. Possibly surprisingly, tax and incentive considerations might not be conflicting in the choice of transfer prices. Compared to divisional bargaining, a centralized choice of transfer prices, where tax savings considerations are dominant, might not dilute, but strengthen incentives of managers to provide essential inputs to local production. The tax-related incentive effects spill over to government incentives to compete for MNE profits. We relate the analysis to the current OECD initiatives on transfer pricing regulation and identify welfare effects of regulatory measures hitherto unnoticed.

Stimmelmayr-Tax-Induced Transfer Pricing and Corporate Agency Costs-460.pdf


1:15pm - 1:37pm

Organizational Capacity and Profit Shifting

Katarzyna Anna Bilicka1, Daniela Scur2

1Utah State University, United States of America; 2Cornell University, United States of America

This paper analyses the effect of firm’s organizational capacity on reported profitability of multinational enterprises (MNEs). Better organizational practices improve productivity and, in principle, increase potential taxable profits of firms. However, higher adoption of these practices may also enable more efficient re-allocation of profits across tax jurisdictions. We find that subsidiaries of MNEs located in high tax countries report significantly lower profits and have higher incidence of bunching around zero returns on assets, if they have better organizational practices. This is especially true for more tax-aggressive MNEs. Using an event study design, we find that firms with better practices are more responsive to corporate tax rate changes. These responses are also driven by more tax aggressive MNEs. These patterns are consistent with organizational capacity partially driving profit shifting behavior.

Bilicka-Organizational Capacity and Profit Shifting-124.pdf


1:37pm - 2:00pm

Investment and Global Intangible Low-Taxed Income

Jennifer Blouin, Nathan Born

University of Pennsylvania, United States of America

The Tax Cuts and Jobs Act of 2017 introduced Global Intangible Low-Taxed Income (GILTI), which is a minimum tax on the foreign earnings of US-based companies. In this paper, we model investment incentives for multinational firms and, in particular, how GILTI alters foreign activity in low-tax and high-tax jurisdictions. We find that GILTI creates differing tax regimes depending on the foreign tax rate. In high-tax countries, US firms face a territorial regime. However, in low-tax countries, US firms face a regime that resembles a world-wide tax system. In our model, GILTI incentivizes tangible capital investment in low-tax countries, thereby altering the capital intensity of those subsidiaries. The new US system also eliminates the incentive for firms to hold foreign passive investment. We test these inferences empirically, finding mixed evidence in support of our theoretical predictions.

Blouin-Investment and Global Intangible Low-Taxed Income-547.pdf
 
12:30pm - 2:00pmB07: Unemployment Benefits and Paycheck Protection Programs
 
 
12:30pm - 12:52pm

Entitled to Leave: the Impact of Unemployment Insurance Eligibility on Employment Duration and Job Quality

Laura Khoury1, Clément Brebion2, Simon Briole3

1Norwegian School of Economics, Norway; 2Copenhagen Business School, Denmark; 3Paris School of Economics, JPAL, France

In this paper, we provide a comprehensive evaluation of a reform that softened the minimum employment record to qualify for UI benefits in France after 2009. Using administrative panel data matching employment and unemployment spells, we first provide clear evidence that the reform induced a separation response at the eligibility threshold. The jump in transitions from employment to unemployment is partly explained by the scheduling of shorter contracts, in line with the new eligibility condition. Exploiting the reform as well as relevant sample restrictions, we then estimate the effects of receiving UI benefits on subsequent labor market outcomes using a regression discontinuity design. Our findings point to a large negative impact of UI benefits receipt on employment probability up to 21 months after meeting the eligibility condition, which is not counterbalanced by an increase in job quality.

Khoury-Entitled to Leave-482.pdf


12:52pm - 1:15pm

Multigenerational Spillover Eects of Unemployment Insurance Reform: Grandparents' Labour Supply and Grandchildren's Educational Outcomes

Jim Been1, Anne Gielen2, Marike Knoef3, Gloria Moroni4

1Leiden University; 2Erasmus School of Economics, Netherlands, The; 3Leiden University; 4Erasmus School of Economics, Netherlands, The

The 2004 unemployment insurance reform introduced in the Netherlands increased the labour supply of individuals above 57.5 years old - age when individuals are likely to be grandparents (generation 1). Using unique administrative data covering three generations in families, we investigate the spillover effect of this reform on their grandchildren (generation 3). We implement an IV strategy which exploits exogenous variation yielded by the policy introduction date and the age eligibility criteria to instrument for grandparents being active on the labour market. We find a positive impact of grandfathers' activity on the grandchildren's educational outcomes. We provide evidence on potential direct mechanisms driving this relationship - i.e. going directly from grandfathers to grandchildren - as well as potential indirect mechanisms - i.e. mediated by changes in mothers' (generation 2) labour supply and fertility.

Been-Multigenerational Spillover Eects of Unemployment Insurance Reform-237.pdf


1:15pm - 1:37pm

The Impact Of A European Unemployment Benefit Scheme On Labour Supply And Income Distribution

Agathe Simon

BETA STRASBOURG UNISTRA, France

This paper investigates the effect of the introduction of a European unemployment insurance (EMU-UI) on the labour supply for the Eurozone countries. Based on a structural estimation of labour supply and using the European tax-benefit microsimulation model EUROMOD, we simulate various scenarios of reform.

The results show that the labour supply response to the reform differs substantially across countries. The strongest labour supply reaction to the introduction of a EMU-UI are found in Italy, Portugal, Latvia and Lithuania regardless of EMU-UI design. We find higher disincentive to work effects for women in couple and single men. The EMU-UI characteristics affect differently labour supply as our third scenario tends to imply stronger labour supply reaction, however it would perform better against poverty and income inequality in many countries. An EMU-UI with floor and ceiling amounts tends to limit labour supply distortions while reducing inequalities and poverty.

Simon-The Impact Of A European Unemployment Benefit Scheme-411.pdf


1:37pm - 2:00pm

An Evaluation of the Paycheck Protection Program Using Administrative Payroll Microdata

David Autor1, David Cho2, Leland Crane2, Mita Goldar3, Byron Lutz2, Joshua Montes2, William Peterman2, David Ratner2, Daniel Villar2, Ahu Yildirmaz3

1Massachusetts Institute of Technology; 2Federal Reserve Board, United States of America; 3ADP

The Paycheck Protection Program (PPP) was intended to assist small businesses to maintain employment and wages during the COVID-19 crisis, as well as cover other expenses. We use administrative, high-frequency employment data from ADP---one of the world's largest payroll processing firms---to estimate the causal effect of the PPP on the evolution of payroll employment at PPP-eligible firms relative PPP-ineligible firms. Our estimates indicate that the PPP boosted employment at eligible firms by between 2 percent to 5 percent at its peak effect around mid-May 2020. We find that the boost to employment waned thereafter and ranged from no effect to a 3 percent boost at the end of 2020. Overall, while the PPP appears to have substantially boosted employment during the worst months of the pandemic, we conclude that the cost per job saved was substantial.

Autor-An Evaluation of the Paycheck Protection Program Using Administrative Payroll Microdata-129.pdf
 
2:15pm - 3:45pmC01: Tax Havens
 
 
2:15pm - 2:37pm

Tax Competition on the Extensive and Intensive Margins

David R Agrawal1, Tidiane Ly2, Raphaël Parchet2

1University of Kentucky; 2Università della Svizzera italiana (USI), Switzerland

This paper studies the welfare implications of strategic tax setting in the presence of tax havens. We develop a tax competition model in which jurisdictions first decide whether or not to levy a tax and then decide the optimal tax rate to compete for mobile factors. We show that decentralized tax rates can be too low or too high depending on the number of non-adopting jurisdictions. In particular, taxes are too low if the number of tax havens is low and too high if the number of tax haven is high. We apply our model to U.S. county sales taxes where 40\% jurisdictions do not levy a sales tax. We find that tax rates are up to $33\%$ too low and the number of tax havens is up to $47\%$ too high compared to the social optimum.

Agrawal-Tax Competition on the Extensive and Intensive Margins-154.pdf


2:37pm - 3:00pm

Effects of International Tax Provisions on Domestic Labor Markets

Daniel Garrett1, Eric Ohrn2, Juan Carlos Suarez Serrato3

1Wharton School, United States of America; 2Grinell College, United States of America; 3Duke University, United States of America

We study the domestic labor markets effects of two historical, but highly applicable,US international tax provisions. The first provision, “check-the-box,” (CTB) decreased effective tax rates abroad by increasing the ability of MNEs to avoid taxation on passive income. The second provision, the 2004 repatriation “holiday,” (RH) decreased the tax costs of repatriating foreign earnings by 85%. To study the effects of each provision, we use a difference-in-differences event study framework to compare employment, earnings,and earnings per worker in the US counties most exposed to MNEs that benefited from CTB and most exposed to repatriations made under the holiday to the same outcomes in counties exposed to two matched control groups of US corporations, one for each policy.

Garrett-Effects of International Tax Provisions on Domestic Labor Markets-364.pdf


3:00pm - 3:22pm

Tax Competition in Presence of Profit Shifting.

Steeve Mongrain1, David Oh2, Tanguy van Ypersele3

1Simon Fraser University, Canada; 2Canada Mortgage and Housing Corporation; 3Aix-Marseille University

The popular view is that governments should crack down on tax avoidance by multinational firms. In this paper, we analyze how anti-profit-shifting policies influence fiscal competition. Governments commit to profit shifting control effort and then set taxes on capital. Equilibrium tax rates are determined by the elasticities of the two components: profit shifting and capital mobility. Anti-profit-shifting policies decrease the elasticity of the first but increase the elasticity of the second, so that the impact of these policies on the equilibrium of the tax game is ambiguous. We show that there are cases in which laxer policies increase all equilibrium tax rates and that the country announcing laxer profit shifting policies may gain. It appears that there is not always a pure strategy equilibrium in such a fiscal competition game. We construct a mixed strategy equilibrium when the pure strategy equilibrium does not exist.

Mongrain-Tax Competition in Presence of Profit Shifting-283.pdf


3:22pm - 3:45pm

Do Multinational Firms use Tax Havens to the Detriment of Other Countries?

Dhammika Dharmapala

University of Chicago, United States of America

The use of tax havens by multinational corporations (MNCs) has attracted increasing attention and scrutiny in recent years. This paper provides an exposition of the academic literature on this topic. It begins with an overview of the basic facts regarding MNCs’ use of havens, which are consistent with the location of holding companies, intellectual property, and financial activities in havens. However, there is also evidence of significant frictions that limit MNCs’ use of havens. These limits can be attributed to nontax frictions (such as the legal and business environment in different jurisdictions), to tax law provisions limiting profit shifting, and to the costs of tax planning. There is evidence consistent with the relevance of each of these channels. The paper also argues that nonhaven countries have available a range of powerful tax law instruments to neutralize the impact of MNCs’ use of havens.

Dharmapala-Do Multinational Firms use Tax Havens to the Detriment-207.pdf
 
2:15pm - 3:45pmC02: Labor Supply, Immigration, and Welfare Programs
 
 
2:15pm - 2:37pm

Continued Education in Germany: The Roles of Culture and Institutions

Jasmin Vietz

University of Hohenheim, Germany

I study the effect of culture and institutions on continued education activities of immigrants in Germany. To identify a causal effect, I rely on two different sources of variation: (i) differences in immigrants' cultural backgrounds and (ii) differences in educational leave policies at the federal state level. I find that immigrants from more patient cultures are more likely to engage in continued education as adults. Introducing a legal claim on educational leave also has a positive impact on engagement in continued education. This impact is smaller for individuals from more patient cultures suggesting that culture substantially impacts how individuals respond to educational policies.

Vietz-Continued Education in Germany-277.pdf


2:37pm - 3:00pm

Broadband Internet and Business Activity

Richard Huntley Beem

University of Tennessee, United States of America

Does the diffusion of broadband-capable networks enhance business activity and entrepreneurship? Does the narrowing of the Digital Divide spur rural economic growth? To answer these questions empirically, I examine one of the Federal Communication Commission's largest broadband deployment programs to date — Phase II of the Connect America Fund. Exploiting plausibly exogenous variation in the deployment of wired broadband connections during the 2015-18 period, my county-level difference-in-differences results produce persistent gains in the number of firms, establishments, employment, wages, and the number of entrepreneurs in treated counties. Exploring sources of heterogeneity reveals that firm growth is driven by small firms, rural firms, and young firms. Finally, a simple cost-benefit analysis reveals that the CAF II program likely generated a net benefit measuring $236 million.

Beem-Broadband Internet and Business Activity-143.pdf


3:00pm - 3:22pm

Who Benefits From Job Training Programs? Evidence From a High-dosage Program in Brazil

Daniel Da Mata1, Rodrigo Oliveira2, Diana Silva2

1Sao Paulo School of Economics - FGV, Brazil; 2Federal University of Bahia, Brazil

Using admission lotteries and registry data linking labor market outcomes, we study the effect of a vocational training program focused on disadvantaged individuals in Brazil. The intensive program is an 18-month classroom training coupled with a 6-month on-the-job training provided by government-sponsored training centers. When assessing the impacts on 15,000 winners and 200,000 nonwinners who graduated in different business cycle moments, we show that female students fare better than their male counterparts. Results are driven by courses in services and those located in faster-growing local labor markets. Investigating outcomes beyond employment and earnings, we do not find an impact on entrepreneurship or university admission.

Da Mata-Who Benefits From Job Training Programs Evidence From a High-dosage Program-518.pdf


3:22pm - 3:45pm

The Fiscal Effect of Immigration: Reducing Bias in Accounting Estimates

Michael Andrew Clemens

Center for Global Development and IZA, United States of America

Immigration policy can have important net fiscal effects that vary by immigrants' skill level. But mainstream methods to estimate these effects are problematic. Methods based on cashflow accounting offer precision at the cost of bias; methods based on general equilibrium modeling address bias with limited precision and transparency. A simple adjustment greatly reduces bias in the most influential and precise estimates: conservatively accounting for capital taxes paid by the employers of immigrant labor. The adjustment is required by firms' profit-maximizing behavior, unconnected to general equilibrium effects. Adjusted estimates of the positive net fiscal impact of average recent U.S. immigrants rise by a factor of 3.2, with a much shallower education gradient. They are positive even for an average recent immigrant with less than high school education, whose presence causes a present-value subsidy of at least $89,000 to all other taxpayers collectively.

Clemens-The Fiscal Effect of Immigration-496.pdf
 
2:15pm - 3:45pmC03: College Education
 
 
2:15pm - 2:37pm

University Openings and their Long-term Impact on Regional Wages: Evidence from West Germany

Lea Immel1, Clemens Fuest1,2,3

1ifo Institute, Germany; 2LMU Munich; 3CESifo

This paper investigates the long-term effect of university openings on regional wages in West Germany. We combine geo-coded data on the universe of German universities with information on individual wages from social security records to estimate the impact of university openings on different wage percentiles of the county wage distribution. We find that establishing a new university has a positive effect on wages in nearby counties. This effect differs in terms of size and timing along the wage distribution as well as between different employee subgroups. Moreover, the effect is driven by establishing universities of applied sciences and by universities in urban regions.

Immel-University Openings and their Long-term Impact on Regional Wages-298.pdf


2:37pm - 3:00pm

College Openings and Local Economic Development

Matthias Quinckhardt1, Christina Gathmann1,2, Francesco Berlingieri3

1University of Heidelberg; 2Luxembourg Institute for Socio-Economic Research; 3Center for European Economic Research

We study the effect of universities and colleges on the local economy using administrative data from Germany. Our empirical approach proceeds in two steps: first, we exploit college openings in order to identify the short- and medium-run effects on regional development. Second, we combine a matching procedure with a time-varying difference-in-differences approach to find suitable control regions for regions with a college opening. The results indicate that the opening of a college increases the share of high-skilled workers without reducing high-skilled wages which is consistent with shifts on the demand side. We do not find evidence that new college graduates replace older or low-skilled workers, but rather that total employment increases. Most of the adjustments happen in incumbent firms either through changes in the output mix or in technology.

Quinckhardt-College Openings and Local Economic Development-420.pdf


3:00pm - 3:22pm

College Education and Income Contingent Loans in Equilibrium: Theory and Quantitative Evaluation

Karol Mazur1, Kazushige Matsuda2

1University of Oxford, United Kingdom; 2Hitotsubashi University

We investigate the welfare implications of income-contingent loans (ICLs) used for financing college education in presence of the dropout risk that depends on unobservable effort. Using a simple model, we show that the laissez-faire enrollment is inefficiently low due to missing insurance against dropping out. However, providing this insurance generates a moral hazard cost of lowering effort. We show that ICLs can implement the second best allocation. Then, we construct a heterogeneous agent OLG life-cycle model, calibrate it to the US and show that ICLs significantly increase welfare and that their non-linear structure is essential to delivering high welfare gains.

Mazur-College Education and Income Contingent Loans in Equilibrium-235.pdf


3:22pm - 3:45pm

Opportunity Unraveled: Private Information and the Missing Markets for Financing Human Capital Investments

Daniel Herbst1, Nathaniel Hendren2

1University of Arizona, United States of America; 2Harvard University, United States of America

Investing in college carries high returns, but comes with considerable risk. Financial products like equity contracts can mitigate this risk, yet college is typically financed through non-dischargeable, government-backed student loans. This paper argues that adverse selection has unraveled private markets for college-financing contracts that mitigate risk. We use survey data on students' expected post-college outcomes to estimate their knowledge about future outcomes, and we translate these estimates into their implication for adverse selection of equity contracts and several state-contingent debt contracts. We find students hold significant private knowledge of their future earnings, academic persistence, employment, and loan-repayment likelihood, beyond what is captured by observables. Our empirical results imply that a typical college-goer must pay back $1.64 plus interest for every $1 of equity financing to cover the financier's costs of covering those who would adversely select their contract. We quantify significant welfare gains from government subsidies to these missing markets.

Herbst-Opportunity Unraveled-349.pdf
 
2:15pm - 3:45pmC04: Health and Fertility
 
 
2:15pm - 2:37pm

Doing Good rather than Doing Well: What Stimulates Personal Data Sharing and Why?

Maclean Gaulin1, Nathan Seegert2, Mu-Jeung Yang3

1University of Utah, United States of America; 2University of Utah, United States of America; 3University of Utah, United States of America

Personal data markets have become ubiquitous. At the same time, the non-rivalry of data suggests that the social returns to personal data sharing will often exceed its private returns. Using a unique sequence of RCTs for randomized COVID-19 testing among tens of thousands of households in Utah, we analyze different tools to stimulate personal data sharing. We contrast the effectiveness of incentives for data sharing with mechanisms suggested by behavioral economics, including moral engagement, image motivation, and identity. Our results suggest that incentives by themselves can easily backfire and are highly complementary with framing effects. Furthermore, image motivation and identity are an order of magnitude more effective in influencing data sharing than monetary incentives.

Gaulin-Doing Good rather than Doing Well-334.pdf


2:37pm - 3:00pm

With Booze, You Lose: The Mortality Effects of Early Retirement

Patrick Chuard-Keller

University of St. Gallen, Switzerland

This study analyzes the effect of early retirement on male mortality. I exploit two reforms in a regression discontinuity design, which allowed men in Switzerland as of a certain cohort to retire one and two years before the statutory retirement age. I draw from two full sample administrative data sets: the mortality and the old age insurance register. Retiring two years before the statutory retirement age increases the absolute risk of death before the age 83 by 41 percentage points. Heterogeneity analysis reveals that the effect is driven by lifestyle diseases such as alcohol dependence and respiratory diseases related to smoking. There is no effect heterogeneity regarding income, which suggests that the negative health effect is not caused by a loss in income. The results support the lifestyle hypothesis suggesting that retirement increases mortality due to a loss of structure and a concomitant unhealthy lifestyle.

Chuard-Keller-With Booze, You Lose-483.pdf


3:00pm - 3:22pm

Curtailment of Civil Liberties and Subjective Life Satisfaction

Lisa Windsteiger1, Michael Ahlheim2, Kai Konrad1

1Max Planck Institute for Tax Law and Public Finance, Germany; 2University of Hohenheim, Germany

This analysis focuses on the lockdown measures in the context of the Covid-19 crisis in Spring 2020 in Germany. In a randomized survey experiment, respondents were asked to evaluate their current life satisfaction after being provided with varying degrees of information about the lethality of Covid-19. We use reactance as a measure of the intensity of a preference for freedom to explain the variation in the observed subjective life satisfaction loss. Our results suggest that it is not high reactance alone that is associated with large losses of life satisfaction due to the curtailment of liberties. The satisfaction loss occurs in particular in combination with receiving information about the (previously overestimated) lethality of Covid-19.

Windsteiger-Curtailment of Civil Liberties and Subjective Life Satisfaction-227.pdf


3:22pm - 3:45pm

Baby Bonus, Fertility, and Missing Women

Wookun Kim

Southern Methodist University, United States of America

This paper presents novel causal evidence on the effects of pro-natalist financial incentives on babies. I exploit rich spatial and temporal variation in the generosity of cash transfers provided to families with newborn babies and the universe of birth, death, and migrant registry records in South Korea. I find that the total fertility rate in 2015 would have been 3% lower without the cash transfers. These cash transfers were particularly effective among working mothers and encouraged them to have second and third children. This selection of working mothers into childbearing led to a decrease in gestational age, which in turn led to an overall reduction in birth weight, but no change in early mortality. The cash transfers had an unintended consequence of correcting the unnaturally male-skewed sex ratio closer to its natural level.

Kim-Baby Bonus, Fertility, and Missing Women-109.pdf
 
2:15pm - 3:45pmC05: Indirect Taxation: Theory
 
 
2:15pm - 2:37pm

The Cost Of Public Funding With Direct And Indirect Taxation – A Revisit

Katinka Holtsmark1, Bjart Holtsmark2

1University of Oslo, Norway; 2Statistics Norway, Norway

We show in this paper that the marginal cost of public funds (MCF) does not depend on whether public revenue is collected by taxation of consumer goods or by taxation of income from factors supplied on the market by households. Atkinson and Stern (1974) concluded in their seminal paper that "[...] whether the Conventional Rule provides an under- or over-estimate depends on the choice of taxed good [....]." Although this conclusion can be interpreted in different ways, it has created confusion in the literature on the MCF and has been the basis for literature arguing that the standard measure of the MCF has weaknesses and should be replaced by alternative measures (Jacobs, 2018; Jacobs & de Mooij, 2015; Håkonsen, 1998). We show that the choice between direct and indirect taxation does not affect the MCF.

Holtsmark-The Cost Of Public Funding With Direct And Indirect Taxation – A Revisit-429.pdf


2:37pm - 3:00pm

A Welfare Comparison of Ad Valorem and Specific Taxes in Multi-Product Markets

Adam Dearing

The Ohio State University, United States of America

We examine the efficiency ranking of ad valorem vs. specific taxes in multi-product markets using a general framework that admits flexible substitution patterns, various ownership structures and conduct, and marginal cost heterogeneity. First, we consider a single tax rate applied to all products. With symmetric costs, we provide new results regarding dominance of ad valorem taxes. With asymmetric costs, we provide a useful sufficient conditions for the specific tax to welfare dominate and discuss when this is more ore less likely under various forms of conduct.

We also provide welfare comparison for good-specific tax rates on substitutable goods. When firms have market power, we show that the ad valorem taxes dominate, even with arbitrary cost heterogeneity.

Our results suggest that both market power and the ability to target tax rates to specific goods support ad valorem taxes, while certain forms of cost heterogeneity work in favor of specific taxes.

Dearing-A Welfare Comparison of Ad Valorem and Specific Taxes-356.pdf


3:00pm - 3:22pm

The Optimal Taxation Of Air Travel Under Monopolistic Dynamic Pricing

Lennart Stern

PSE-EHESS, France

This article re-examines the question of how to optimally tax air travel within the model from Gallego and van Ryzin (1994) in which a monopolistic airline chooses its dynamic pricing policy to sell tickets to randomly arriving consumers over a finite time horizon until the plane departs. In general, the profit-maximizing policy differs from the welfare-maximizing policy. However, for a certain class of demand functions that includes constant elasticity and exponential demand functions, a simple policy instrument, namely a tax on vacant seats is sufficient to perfectly align profit maximization incentives with welfare maximization. Calibrating the model to predict a load factor of 80% (the current global average), the welfare-maximizing tax on vacant seats leads to load factors of 97% for the constant elasticity demand function and 98% for the exponential demand function.

Stern-The Optimal Taxation Of Air Travel Under Monopolistic Dynamic Pricing-505.pdf


3:22pm - 3:45pm

Tax Avoidance and the Choice of Tax Base

Brian David Galle1, David Gamage2, Yulia Kuchumova3

1Georgetown University, United States of America; 2Indiana University; 3State University - Higher School of Economics

We provide a general model of the optimal mix of income and consumption taxes in the presence of tax avoidance. We find a Ramsey-type result in which each of

income and consumption taxes should be imposed in inverse proportion to the combined elasticity of real and avoidance responses to the respective tax. Contrary to some prior results, we find that consumption taxes are optimally non-zero across a variety of settings, and in particular when the (weighted) elasticity of taxable income with respect to the income tax is greater than the cross-elasticity of taxable income with respect to the consumption tax. We then implement a calibration exercise in which we estimate this cross-elasticity using voting on local sales-tax increases in California. Our estimates suggest non-zero sales taxes would be efficient for more than nine-tenths of the distribution of potential outcomes.

Galle-Tax Avoidance and the Choice of Tax Base-113.pdf
 
2:15pm - 3:45pmC06: State and Local Public Finance
 
 
2:15pm - 2:37pm

Voting with your feet? Socioeconomic Sorting in the Aftermath of Regional Autonomy

Vera M. Eichenauer1, Michaël Aklin2

1ETH Zurich, Switzerland; 2University of Pittsburgh

Regional autonomy is in high demand as recent events in Catalonia, Scotland, Kashmir, or in the Kurdish territories illustrate. But what happens once political autonomy is granted? Rigorous evidence on the consequences of autonomy is scarce. We study the population dynamics following seperation. Our model endogenizes the structure of the population living in the new jurisdictions and suggests two mechanisms. We test the predictions using the case of the internal secession of the historic Jura region in Switzerland, part of which voted for and was allowed to leave the Canton of Bern to create the Canton of Jura in 1978. Jura's far-reaching political autonomy led to population sorting according to salient social characteristics. Our results on the mechanisms provide evidence that rather than pocketbook considerations it is cultural identity, which shapes public policy preferences, that underlies population sorting.

Eichenauer-Voting with your feet Socioeconomic Sorting in the Aftermath-449.pdf


2:37pm - 3:00pm

Land Scarcity and Urban Density within Cities

Melanie Krause1, André Seidel2

1University of Hamburg, Germany; 2University of Bergen, Norway

This paper studies how limitations on land for development affect within-city variation in urban density. We argue that land scarcity increases urban density on similar types of land, for example, on those with the same distance to the city center or the same average hours of sunshine. To test this hypothesis, we use within-city geographical obstacles as exogenous sources of scarcity of certain land types. We show that scarcer land types have higher urban density, which arises mostly from taller buildings and less from more crowding or residential coverage. Importantly, the effect operates through the heterogeneous citywide supply of different land types rather than preferences for local geography. Our findings reveal a potentially significant effect that local regulations can have on the heterogeneity of city-wide urban density.

Krause-Land Scarcity and Urban Density within Cities-181.pdf


3:00pm - 3:22pm

Fiscal Consequences of Municipal Mergers

Luisa Doerr

ifo Institute, Germany

The overarching goal of municipal territorial reform is to realize economies of scale. At the same time, fiscal equalization schemes often grant disproportionately higher grants to large municipalities. Little is known about the consequences of encompassing territorial reforms on fiscal equalization transfers. I examine this question using the German state of Saxony, where the number of municipalities decreased by 74% from 1.614 in 1992 to 419 in 2019. I use generalized difference-in-difference and event study estimations to identify how mergers affect fiscal transfers in particular and the local budget in general. The results confirm a large and persistent redistribution of fiscal transfers after territorial reforms: merging municipalities gain up to €27 p.c. in yearly transfers, an effect that amounts to 11% of the mean transfer in the sample. With the exception of administrative expenditures, municipal spending did not change systematically after mergers.

Doerr-Fiscal Consequences of Municipal Mergers-374.pdf


3:22pm - 3:45pm

State Business Income Taxes and Business Dynamism

Thomas Brosy

University of Michigan, United States of America

Business dynamism has been linked to innovation and employment creation, yet there is little empirical research on the relationship between business taxation and business operations births and deaths. Using county-level panel data and a state border identification strategy, I document a negative effect of state corporate tax rates on establishment birth rate: an increase in the top state corporate tax rate of 1 percentage point leads to a decline in the birth rate of about 1.5-2%. The effect on exits is also negative but smaller in magnitude with a net-of-tax rate elasticity around 1. Using data at the census tract level, I show that spillovers are unlikely to be driving the main results, but can be large in areas close to the border - within 3 to 5 miles. These findings are robust to changes in other state level policies and sample restrictions.

Brosy-State Business Income Taxes and Business Dynamism-497.pdf
 
2:15pm - 3:45pmC07: Rules, Infrastructure and Debt
 
 
2:15pm - 2:37pm

Fiscal Rules Of Local Debt And Financial Flexibility Of Municipally-Owned Companies

Anna Białek-Jaworska, Agnieszka Kopańska

University of Warsaw, Poland

This paper aims to verify whether local governments use municipally-owned corporations (MOCs) to avoid fiscal debt limits set by public finance law. If yes, how this off-budget indebtedness influences the financial flexibility of MOCs. We exploit the natural experiment of introducing new fiscal debt limits in Polish local governments in 2014 using panel data of unique 1294 MOCs owned by 756 municipalities for 2010-2018. We confirm that municipal services’ corporatization is oriented toward overcoming the new restrictive fiscal debt rules via off-budget debt.

MOCs’ debt subsidizes local public debt after 2014 when new indebtedness restrictions imposed on municipalities were in force. Consequently, tightening of fiscal rules related to sub-sovereign indebtedness decrease MOCs’ financial flexibility measured by unused debt capacity while increasing their cash holdings, except for water service MOCs. Municipalities with lower debt capacity limited by the new fiscal debt rules have higher off-budget debt issued by transport MOCs.

Białek-Jaworska-Fiscal Rules Of Local Debt And Financial Flexibility Of Municipally-Owned Companies-274.pdf


2:37pm - 3:00pm

No Regret Fiscal Reforms: Rule Vs Discretion Revisited

Pierre-Edouard Collignon

CREST - Ecole polytechnique, France

How can labour and capital taxes react to shocks while preserving incentives to work and save? While the standard solution involves a commitment to a contingent policy, this paper introduces No Regret fiscal reforms defined as changes in current and future policy such that households do not regret their previous savings decisions. Hence flexibility is provided and incentives to save are preserved. Such reforms can be achieved by changing taxes both on capital and labour such that wealth effects exactly compensates substitution effects. Optimal No Regret policies are compared to optimal contingent policies in a representative agent framework. First, when shocks and their distributions are common knowledge, optimal no regret policies only lead to small welfare losses. Second, when the distribution of shocks is itself uncertain, welfare differences are reduced and may even disappear. Introducing wealth and skill heterogeneity, I establish the existence and partial characterization of No Regret reforms.

Collignon-No Regret Fiscal Reforms-395.pdf


3:00pm - 3:22pm

Effect of an Income Shock on Subnational Debt: Micro Evidence from Mexico

Mariela Dal Borgo

Banco de México, Mexico

This paper examines how the borrowing decisions of local governments respond to an income shock. The shock stems from the updating of population census data that affects the distribution of federal transfers. For a one-standard-deviation increase in the population shock, I find that federal transfers to Mexican municipalities increase by 2% over the first two post-census years. Using supervisory loan-level data, I show that the probability of municipalities being indebted declines by 0.1 percentage points over this period. The response is driven by governments less dependent on transfers, which lenders perceive as more creditworthy. These findings reveal a small capacity to smooth shocks in credit markets, restricted to few governments with a diversified revenue base. There is no evidence of a positive grant effect on local debt, not even when the lender is public. The additional revenue mostly goes to finance current expenditures, with limited potential to alter the path of local development.

Dal Borgo-Effect of an Income Shock on Subnational Debt-146.pdf


3:22pm - 3:45pm

Northern Roads And Economic Development

Thomas Stringer, Marcelin Joanis

Polytechnique Montreal, Canada

Road connection is viewed as an important driver of economic development. However, for remote subarctic communities, it can also mean a huge change in their way of life. How large are the socio-economic benefits of road connection? This paper uses census data from Northern Quebec and Labrador to assess the effects of road connection on municipalities connected between 1986 and 2016. Using a difference-in-differences regression model assorted with robustness checks, we find that road connection is correlated with increased employment rates and educational attainment and decreased unemployment. While we also find positive and significant correlations between road connection and income in many specifications, that particular result is not robust when ensuring that error terms are not subject to cross-sectional dependence. Overall, our results support the conjecture that road connection of remote municipalities generates non-negligible economic benefits.

Stringer-Northern Roads And Economic Development-202.pdf
 
4:00pm - 5:30pmPlenary II: Keynote - Marianne P. Bitler (University of California, Davis) on "Entitlements, Block Grants, and the Safety Net: Evidence from the US"
Session Chair: David R. Agrawal, University of Kentucky
 
5:35pm - 6:30pmJunior Networking Sessions A.1: Tax Competition, Taxing Consumption
Session Chair: David R. Agrawal, University of Kentucky
 
5:35pm - 6:30pmJunior Networking Sessions A.2: Economic Mobility, Education
Session Chair: John N. Friedman, Brown University
 
5:35pm - 6:30pmJunior Networking Sessions A.3: International Taxation
Session Chair: Clemens Fuest, ifo Institute and IIPF
 
5:35pm - 6:30pmJunior Networking Sessions A.4: Energy and Environmental Economics
Session Chair: Lucija Muehlenbachs, University of Calgary and RFF
 
5:35pm - 6:30pmJunior Networking Sessions A.5: Taxes and Development / Government & International Organizations
Session Chair: Victoria J. Perry, International Monetary Fund
 
5:35pm - 6:30pmJunior Networking Sessions A.6: Tax Evasion and Enforcement
Session Chair: Joel Slemrod, University of Michigan
 
5:35pm - 6:30pmJunior Networking Sessions A.7: Labor Markets and Social Policy
Session Chair: Andrea Weber, Central European University
 

 
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