Are austerity programs successful in reducing deficits and how do they affect public finances and the economy more generally? We examine the consequences a municipal debt relief program by the Hessian state government in 2012 which provided partial debt relief to 78 municipalities while enforcing budget balance. We compile a novel dataset for 421 municipalities (2007-2016 period) and combine propensity score matching with a difference-in-differences design to identify causal effects. Targeted municipalities consolidate their budgets by increasing local property and business tax rates as well as cutting social and personnel expenditures. Overall, we find no adverse effects on local economic activity in bailout municipalities. However, women are more affected by consolidation induced public sector job cuts than men. We also detect a substantial negative impact of program participation on construction activity and house prices (in smaller municipalities).

In decentralized nations like Switzerland and Germany, local taxes are linked to tax schedules determined by superior governments. In such systems, a change to the tax schedule creates a vertical tax externality and affects local governments’ budgets downstream. To investigate this mechanism, I put forward a model of residence-based income tax competition

model with local taxes linked to a federal tax schedule. Comparative statics show that municipalities counteract federal tax changes by raising their own taxes (partially) undoing federal tax changes. A higher degree of tax competition shifts the fiscal adjustment more to reduced public good spending. To provide empirical evidence for the theoretical predictions, I exploit cantonal variation in income tax policy across 19 Swiss cantons and find

that, municipalities in treatment cantons increase their own taxes and reduce public expenditure and investment. Municipalities more exposed to tax competition put more focus on investment and expenditure than taxation.

This paper studies the effect of salient fiscal rules on public institutions. To retrieve the causal effect of salience on tax setting behavior and the soundness of local public accounts, we exploit both across- and within-variation in the visibility of reference rates in the German Lander’s fiscal equalization systems. We find that, more than the need to recover lagged data or interjurisdiction comparison, mathematical operations – mainly multiplications, averages, and rounding – are central determinants of non-salience. In turn, the inclusion of mathematical operations (especially if described in words without including a formula notation) leads to large errors in the tax setting strategies of municipalities which imposes significant and inefficient economic pressure on their finances.

In 1993, Finland transitioned from a global or comprehensive income tax to a dual income tax (DIT) system. An overlooked side-effect of the reform was the removal of capital income from the local income tax base. Since local income taxes are an important source of revenue for Finnish municipalities, the reform resulted in negative revenue shocks where capital was concentrated. In this paper, we examine the local response to the change in the tax base and the increase in after-tax inequality. We first analyse the fiscal policy response to greater grant dependence but reduced tax competition due to the removal of the most mobile part of the income tax base. Next, we evaluate how election turnout and voting patterns change in response to the reduced taxation of capital income recipients and the associated rise in inequality, using the loss of taxable income as a salience mechanism.

To control the illicit cigarette market, the government adopted a Tracking and Tracing System (TTS) for many excisable goods including cigarettes. Though the TTS was implemented in 2021, it became operational in July 2022, because of numerous legal and market challenges. Despite these roadblocks, the TTS has been mostly successful and by December 2023, most tobacco companies had either installed TTS or registered their brands with the tax authority.

This paper evaluates the impacts of the TTS on the size and types of illicit trade in tobacco products. We collect cigarette packs from waste recycled stores in the 10 most populous cities of Pakistan to evaluate illicit trade penetration. We also compare the results with a similar study using the same method and completed prior to the TTS. This is the first independent estimate of the proportion of non-complaint cigarette packs consumed in urban areas of Pakistan since the implementation of TTS.

We conducted a nationally representative volumetric choice experiment (VCE) of 700 US adults aged 21+ who vape ECs in the past 30 days during April-May 2023. Each participant reported their spending on nicotine or tobacco products and was asked to make purchases for monthly use among 9 sets of products, Zero-inflated negative binomial models were used to estimate the own- and cross- price elasticities among these products, while controlling for individual-level spending and sociodemographic characteristics. Increasing prices reduces the purchases of nicotine or tobacco products among US adults who vape ECs. Increasing EC prices likely did not lead to increasing cigarette purchases among people who vape ECs. However, this result depends on model specifications and subpopulations, such as EC-cigarette dual use status. Future research is needed to inform the best design of EC taxes by EC models and components, given their complex economic relationships.

We examine the impacts of alcohol sales restrictions on alcohol sales and broader welfare implications. We focus on the role of government alcohol monopolies in an environment where limited alcohol sales are allowed outside of the monopolies. We utilize a reform that relaxed the restriction on alcohol sales outside of the monopoly and smaller changes in alcohol tax rates. We study the impact of the reform on total sales as well as substitution and spillover patterns across product categories and different types of stores. Our results indicate very large substitution between different product categories and also between the state monopoly and private stores. We also find evidence of spillover effects to the sales of more distant product categories that are not directly affected by the reform. The total alcohol consumption does not seem to increase during the reform. These effects entail a welfare loss originating from alcohol sales restrictions.

A strong economic case can be made for public support for research. In this paper, which is work in progress, we focus on expenditure- and income-based tax incentives, which have both been used increasingly in OECD countries and elsewhere since the early 2000s. We use macrodata-based analyses to make three contributions. First, we bring together recently published data on expenditure- and income-based tax incentives regimes within a common empirical framework. Second, we analyze the impacts of income-base tax incentives regimes on R&D activity, as opposed to patent applications. Third, we present an evaluation of the impacts of BEPS Action 5 on the effectiveness of IBR, notably compared to XBR.

I show that public funding significantly improves the financing situation of young firms by exploiting variation in access to public funding under the largest German regional policy scheme. My results based on a shock-based difference-in-differences research design indicate that the probability of experiencing financial constraints decreases by about 10% to 19% for treatment firms relative to control firms, depending on whether the funding instrument is a subsidized loan, a public loan guarantee, or a grant. The effect is heterogeneous not only across instruments but also across capital providers. In addition, I find that public funding is associated with higher employment and revenue growth, as well as higher research and development expenditures and, for recipient firms of grants, higher investment.

Water is an increasingly scarce resource. However, in many multi-family buildings, water is included in the rent and tenants can consume an unlimited amount at a fixed cost, with no monetary incentives for saving water. Using high-frequency data over multiple years and a staggered implementation of apartment-level billing, we investigate the effects of volumetric pricing on hot water use. Our results show that individual billing decreases hot water consumption by 18%. The response is rather immediate and appears to be permanent. Additionally, estimated effects are remarkably homogeneous across different consumption quartiles, apartments with varying characteristics, and days of the week, and evenly distributed between bathroom and kitchen usage. Our cost-benefit analysis indicates that price interventions can cost-effectively reduce the consumption of hot water. Moreover, the effect of individual billing is of an order of magnitude higher than previously estimated effects of non-pecuniary incentives and providing more information about water consumption.