Public Finance in the Era of the COVID-19 Crisis
18-20 August 2021 | Online, Organized by University of Iceland, Reykjavík
Overview and details of the sessions of this online conference.
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Some information on the session logistics: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: 27th Nov 2021, 02:58:04am GMT
F04: Firms in Public Economics
2:15pm - 2:37pm
Issuance and Valuation of Corporate Bonds with Quantitative Easing
1University of Notre Dame, United States of America; 2European Central Bank
After the announcement of the European Central Bank’s corporate quantitative easing program, non-financial corporations timed the bond market by shifting their issuance toward bonds eligible for the program. However, issuers of eligible bonds did not increase total issuance compared to other issuers; nor did they experience different economic outcomes. Instead, the announcement produced substantial spillover effects on risk premia. Credit risk premia declined, both in the corporate bond market and in the default swap market, whereas the valuation of eligible bonds did not change relative to comparable ineligible bonds. Firms took advantage of reduced risk premia by issuing riskier bond types. Using a novel and comprehensive dataset of corporate bonds in the euro area, we document how firms substituted across bond characteristics, and we find evidence of their intention to time the market. Our model indicates corporate market timing is instrumental in allowing quantitative easing to produce spillover effects.
2:37pm - 3:00pm
Are Firms Fiscally Responsible?
University of Mannheim, Germany
We study attitudes of firm-decision makers towards taxes using unique large-scale survey experiments representative for Germany. Starting from the hypothesis that businesses desire to lower taxes, we test how attitudes towards a 130 billion Euro fiscal stimulus and desired tax rates change, when subjects are confronted with two treatments highlighting social responsibility, fiscal responsibility, compared to a control group. We find that highlighting fiscal responsibility increases opposition against the state intervention and that the desire to reduce taxes diminishes but find no such effect when highlighting social responsibility. Firm-decision makers want to reduce taxes their firm has to pay stronger compared to taxes their firm does not have to pay. Managers are more willing to pay higher taxes, when agreeing with the fiscal stimulus. The harder the firm was hit by the Covid-19 crisis, the stronger the desire to lower taxes.
3:00pm - 3:22pm
Favoritism and Firms: Micro Evidence and Macro Implications
1ZEW - Leibniz Centre for European Economic Research; 2University of Siegen; 3ZEW - Leibniz Centre for European Economic Research and University of Mannheim
We study the economic implications of regional favoritism, a form of distributive politics that channels resources geographically within countries. We utilize enterprise surveys spanning many low and middle income countries, and exploit transitions of national political leaders for identification.
We document strong evidence for regional favouritism among firms located close to current leader's birthplace, but not in other regions, nor in home regions before a leader takes office. Firms in favored regions become substantially larger in terms of sales and employment. They also increase their sales per worker, pay higher wages, and have higher measured total factor productivity. Several mechanisms suggests that leaders divert public resources into their home regions by generating higher demand for firms operating in the non-tradable sector. A simple structural model of resource misallocation that is calibrated to match our empirical estimates implies that favoritism generates aggregate output losses of 0.5% annually.
3:22pm - 3:45pm
Internal Digitalization and Tax-efficient Decision Making
1ZEW Mannheim; 2University of Mannheim
This paper investigates the effect of firms’ internal digitalization on the performance of business support functions such as the tax department. We put forward a novel, micro-level IT sophistication index based on a survey monitoring European firms’ digital infrastructure. Following the objective function of maximizing after-tax returns, we measure tax-efficient decisions in terms of minimizing the firm’s worldwide tax burden. We show that internal digitalization boosts firms’ ability to relocate income to tax-favored jurisdictions. We confirm this result using two plausibly exogenous shocks. First, we exploit a business software supply shock and provide evidence that the adoption of digital technologies enhances efficient cross-border tax planning. Second, using an event study design, we show that digitalized firms promptly adjust reported profits in response to income shifting incentive shocks. Overall, we show that digital infrastructure is a crucial foundation for timely, data-driven decision making and increases support functions’ performance.
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