Conference Agenda

Overview and details of the sessions of this online conference.

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Session Overview
J02: Political Economy IV
Friday, 20/Aug/2021:
10:45am - 12:15pm

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10:45am - 11:07am

Read My Lips? Taxes and Elections

Clemens Fuest1,2,3, Klaus Gründler1,2,3, Niklas Potrafke1,2,3, Fabian Ruthardt1,2

1ifo Institute, Germany; 2University of Munich; 3CESifo

We examine how electoral motives influence tax reforms. We introduce a new quantitative harmonized index of tax reforms based on qualitative information of the IMF. Our sample includes 22 advanced and emerging market economies over the period 1960-2014. The results show that election-motivated politicians postponed tax rate increases to after elections. The increase in the overall tax rate index was around 0.24 standard deviations larger in post-election years than in other years. Politicians were especially active in increasing VAT tax rates and personal income tax rates after elections.

Fuest-Read My Lips Taxes and Elections-399.pdf

11:07am - 11:30am

The Effects of Public Disclosure by Politicians

Carina Neisser, Nils Wehrhöfer

University of Cologne, Germany

Starting in 2005, German federal MPs need to publish their outside earnings in a bracket system top-coded at 7,000 euro. In 2007, private was replaced by public disclosure (also retroactively to 2005) and these information can be accessed online. In 2013, more brackets were introduced such that earnings above 250,000 euro were now censored. First, we exploit both reforms to identify the causal effects of disclosure rules on politician’s earnings using administrative tax return data. It allows us to observe pre-reform income as well as using unaffected state MPs as a control group. Our results indicate that for the first reform the top-coding has the consequence of raising outside earnings, while the second reform (a higher degree of public disclosure) leads to a decrease in outside earnings. Second, we explicitly distinguish between the effects of private versus public disclosure and find no effect of private disclosure.

Neisser-The Effects of Public Disclosure by Politicians-378.pdf

11:30am - 11:52am

Electoral Commitment in Asymmetric Tax-competition Models

Yukihiro Nishimura1,2, Kimiko Terai3

1Osaka University, Japan; 2CESifo, Germany; 3Keio University, Japan

This study examines the political process of tax competition among asymmetric countries, highlighting the role of the commitment to the electoral promises. The median voters deliberately elect a delegate whose preferences differ from their own (strategic delegation), which is self-enforcing under symmetric countries. We first show that the outcome of strategic delegation is replicated when the candidates do not make binding campaign promises in both countries. We then amplify the model by adding the pre-election stage where the citizens choose whether the credibility of election promises is critical, through subscription numbers of newspapers and social media which determine the cost of betrayal of the proposed platforms (or the lack of the proposal). We then show that, depending on the type of asymmetries under consideration, sufficient asymmetry or sufficiently equal income distribution generates the commitment to the election campaign promises as the equilibrium outcome.

Nishimura-Electoral Commitment in Asymmetric Tax-competition Models-304.pdf

11:52am - 12:15pm

Incumbency and Expectations of Fiscal Rule Compliance: Evidence from Surveys of German Policy Makers

Friedrich Heinemann2, Eckhard Janeba1, Maximilian Todtenhaupt3

1University of Mannheim, Germany; 2ZEW Mannheim, Germany; 3Norwegian School of Economics (NHH), Norway

We analyze politicians’ expectations about compliance with a fiscal rule, and in particular the dependence of the expectations on their role in parliament (opposition vs. incumbent govern-ment coalition). We study these questions in the context of the German debt brake, which became a constitutional provision in 2009 but is binding for the sub-national states from 2020 onwards only. Via a unique survey, conducted in 2011/2012 and 2014/16, we observe compliance expectations of parliamentarians of all 16 German state parliaments, We find a strong incumbency effect, politicians from the governing coalition more optimistic than those from the opposition, and more so in the second survey. A theoretical model is developed to rational-ize the increasing incumbency effect, which is driven by assumptions on the cumulative repu-tation gain from fiscal rule compliance and on politicians’ subjective election winning chances (overoptimism).

Heinemann-Incumbency and Expectations of Fiscal Rule Compliance-461.pdf

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