This paper explores the performance of governments’ budget forecasts. We argue that budget forecasts tend to be pessimistic if negative fiscal shocks are perceived to be more costly than positive fiscal shocks. Based on an asymmetric loss function, we show that the observed bias in budget forecasts is related to budget risks. We test these predictions with an empirical analysis of the German states’ forecasts of the budget-balance over a period of fourty years. The results confirm the existence of a robust downward bias for the short-term horizon, which disappears over medium forecast horizons. While we find that the bias is significantly associated with a measure of budget risks, the strong pessimism in short-term forecasts is attributed to larger adjustment cost in case of adverse fiscal shocks.

The classic assignment of functions of government entrusts the central government with the stabilization function. Nevertheless, subnational governments are intimately involved in stabilization policies of their own, often restricted by various rules or balanced budget constraints. This paper reviews this literature and follows and expands on a recent macroeconomic strand which estimates “regional multipliers.” I estimate separately regional multipliers for grants, rainy day funds, and a state’s deficit as well as spillover effects from these revenue sources.

The paper evaluates the forecasting performance of official estimates of the revenue effects of tax legislation, in the absence of dynamic scoring. The analysis is based on a detailed account of 246 German tax reforms, which result in 800 overall changes to individual taxes, at federal level over forty years covering the time period from 1982 until 2022. The preliminary results show that the revenue effects of tax reforms are systematically overestimated. If an increase (decrease) in revenues of 1% is predicted, actual revenues only increase (decreases) by around 0.73%. The overestimation is particularly evident in the case of income taxes, whereas changes in general sales taxes are estimated much more reliably - here the actual revenues vary proportionally with the revenue estimates.

This paper studies the effects of the minimum wage on the life cycle of firms. We first build a tractable model where heterogeneous firms have labor market power, invest in innovation, and choose formal or informal sectors. The model predicts that a minimum wage hike not only shrinks young firms but also lowers incentives to innovate, resulting in lower life cycle growth. We then test the model's predictions using Brazilian administrative data leveraging the variation in exposure across establishments and municipalities to the large increase in the minimum wage between 1999 and 2010. At the establishment level, an increase in the minimum wage: (i) decreases the growth rates of small and young establishments and (ii) increases the growth rates of old and large establishments. When analyzing exposed municipalities, we observe an increase in the earnings of workers in both the formal and informal sectors, as well as informal employment.

This paper studies the effect of prohibiting the use of cash for wage disbursements on labor markets in developing countries. We study a reform in Uruguay that mandated wage payments to be disbursed using only electronic methods. Using a difference-in-differences approach based on sector-level cash intensity prior to the reform, our results indicate that firms in high cash intensity sectors are significantly more likely to discontinue formal activities post-reform. Active firms show a slight reduction in the number of employees and an increase in reported wages. These results are driven by low productivity firms. Complementary results using survey data indicate an increase in informal employment and a decrease in collusive underreporting of earnings partially explain these results. Overall, results suggest that, while eliminating cash for wage payments enhances tax compliance among formal workers, it may also shift some economic activity into full informality.

Mobilizing domestic revenues is crucial for governments. However, in settings with low enforcement, this can be a challenging task. Fostering voluntary tax compliance among citizens is a promising approach for countries with limited state capacity. In this study, we examine public goods messages as a means to increase citizens' voluntary tax compliance. Specifically, we focus on the role of the message sender, comparing public goods messages transmitted by the tax authority to those transmitted by a religious leader. In a lab experiment conducted among market traders in Tanzania, we find that public goods messages conveyed by a religious leader are more effective than those conveyed by the tax authority. Nevertheless, governments must exercise caution when utilizing public goods messages, as in certain contexts, these messages can backfire, resulting in lower tax compliance. This effect is particularly pronounced when the sender of the message is a religious leader.

This paper investigates a neglected aspect of informality in Latin America—Payments Under the Table (PUT), where registered firms make off-the-books salary payments. We conduct the first multi-country large-scale survey on this topic, covering Brazil, Argentina, Mexico, Colombia, and Chile, being representative of over two-thirds of Latin America's population. Out of the more than 5,000 formal workers surveyed, our results indicate that 16% of them receive some part of their compensation under the table. Among PUT receivers, on average 24% of their labor earnings are paid off the books. We then provide insights into the mechanics and motivations behind PUT, exploring its impact on talent misallocation. The research highlights PUT as a potential driver for growth in developing countries, enabling less productive firms to retain skilled workers. By shedding light on this overlooked dimension, the study contributes to a more comprehensive understanding of informality's role in Latin American economic development.

This study provides a detailed descriptive analysis of income inequality within the European Union (EU) over the last three decades, a period covering its expansion to include 13 new member states, mostly transition economies. We examine income inequality at three levels: between countries, within countries, and EU as if it were an entity. Despite GDP convergence among member states, we find increased within-country inequality, particularly in newly acceded members, contrasting with modest rises in established EU countries. Although initial inequality levels were lower in the newer EU countries, they have escalated to match or exceed those in the older member states. We also uncover disproportional income growth pattern across the combined EU income distribution, with lower-middle-income brackets seeing significant gains, though the highest increases are found among the top earners.

This study explores the potential of personal income tax (PIT) to address inequality in African countries. We employ new data on PIT design and reforms from the TaxDev Employment Income Taxes Dataset (EITD) alongside data on pre-tax income distributions from the World Inequality Database (WID) to model the redistributive capacity of PIT regimes in Africa and the extent to which reforms between 1995 and 2020 have affected this capacity. We find that, on average across the sample period, PIT could reduce inequality by around 4.1 Gini points if applied to the entire income distribution. Focusing specifically on policy design, cross-country regressions show that the level of the top marginal PIT rate, and the point at which it is applied, matter most for its potential effects on inequality. Crucially, we find that PIT reforms over the period in question have, on average, lessened the redistributive capacity of PIT.

This paper presents the first systematic attempt to create cross-country comparable measures of spatial wage disparities between and within similarly-defined local labour market areas (LLMAs) for Canada, France, (West) Germany, the UK, and the US since the 1970s and assesses their contribution to national inequality. By the end of the 2010s, spatial inequalities in LLMA mean wages are similar in Canada, France, Germany and the UK; the US exhibits the highest degree of spatial inequality. Over the study period, spatial inequalities have nearly doubled in all countries, except for France where spatial inequalities have fallen back to 1970s levels. Due to a concomitant increase in within-place inequality, the contribution of places in explaining national wage inequality has remained fairly constant over the 40-year study period, except in the UK where we document a significant increase.

This paper expands the traditional concept of disposable income by including in-kind benefits for education and health and consumption taxes into the analysis. This extended view on tax-benefit systems offers a more comprehensive understanding of redistribution mechanisms within countries and facilitates cross-country comparisons. In a first step, our analysis identifies households as either net contributors or net beneficiaries. Our results reveal significant variability in net fiscal contributions across households, influenced by factors such as income level, household composition, and age. We find that extending the income concept reduces the number of net contributor households. In a second step, we take a life-cycle perspective, estimating the contribution of each age cohort in each EU Member State. Our results highlight that individuals contribute very differently over the life cycle across the Member States, and that these contributions are highly correlated with the retirement decisions of individuals.

The Poor Law Amendment Act of 1834 drastically reduced welfare spending across England and Wales. Using a difference-in-differences approach, we find that the withdrawal of poor relief had a lasting effect. Boys and girls exposed to reductions in welfare spending as children are more likely to hold low-skilled occupations as adults, and grandchildren of those exposed are less likely to attend school. The results illustrate the ways in which social policy can affect future generations.

This paper presents novel evidence about the effects of a permanent, large-scale, and government-implemented cash transfer program, the Uruguayan PANES/AFAM-PE. I focus on three critical dimensions of individuals' transition to adulthood: education, fertility, and labor market decisions. I use a unique combination of individual-level administrative records that exhaustively describes the year-by-year trajectory of the effects. Using a Regression Discontinuity Design that exploits the use of a poverty score to define eligibility to participate in the program, I show that the program reduces women's teenage pregnancies by 9.4p.p., increases participants' early adulthood labor market participation by 6.4p.p., months worked by 4.4, and earnings by about 12\%. The evidence on education outcomes is mixed but suggests a stronger attachment to the secondary education system. Consistent with a postponement of women's first birth being the main driver, changes in labor market outcomes are observed exclusively for women.

Despite being the only federally protected form of leave in the United States, relatively little is known about how being eligible for Family and Medical Leave Act (FMLA) protections affects women’s post-birth labor market outcomes. This project uses administrative data on births (Census Household Composition Key) and quarterly earnings (LEHD-EHF and JHF) to compare post-birth employment and earnings outcomes for working women who give birth after 12 months in their jobs (and are eligible for FMLA leave) to those who give birth too soon in their jobs to qualify for FMLA leave. Eligibility for FMLA leave increases the probability women are employed the quarter after they give birth by 6.0%, and the probability they are employed six years later by 4.6%. FMLA eligibility also increases women's earnings both in the short- and long-term, such that eligible women earn over $10,000 more over the first six years after giving birth.

I use the implementation and sunset of “Man in the House” rules within state welfare programs to estimate the long-term impacts of families’ access to economic resources through traditional welfare programs. “Man in the House (MITH)” rules limited families’ participation in the welfare program on an extensive margin if welfare staff suspected non-marital relationships among program participants. I find that states’ enforcement of MITH rules led to racially disparate declines in families’ participation in AFDC. The invalidation of MITH rules by the U.S. Supreme Court in 1968 led to a 15 percent increase in Non-White families’ participation in AFDC. I find high school completion declined among Black cohorts graduating after MITH rules contracted access to AFDC. Conversely, educational attainment increased among Black cohorts exposed to the invalidation of MITH. These results offer new evidence of the consequences of historical U.S. welfare policies that disparately impact families’ access to public assistance.

Terrorism imposes substantial economic costs on affected populations. In this paper, we argue that conventional studies on the costs of terrorism overlook a crucial factor: costly behavioral responses. We demonstrate that terrorism alters the risk attitudes of individuals in affected regions. Using a representative German sample, we utilize a staggered difference-in-differences (DiD) design comparing individuals in counties impacted by terrorism with those unaffected. Results indicate an immediate and significant decrease in risk propensity post-attack. The magnitude of this effect is influenced by news sentiment; more negative reporting amplifies the impact on risk attitudes. Additionally, we observe happiness as a potential mediator in the relationship between exposure to terror attacks and risk attitudes.

We aim to understand whether language causally affects people's attitudes towards private and public debt. We provide descriptive evidence along the German/French language border running through Switzerland and causal evidence from online survey experiments in Austria, Germany, Switzerland, the Netherlands, and Sweden. The experimental component of our research design consists of the randomization of wording in our outcome questions. Exploiting the fact that the commonly used word for ``debt" also means ``guilt" in German, Dutch and Swedish, we analyze how respondents' attitudes towards private and public debt are affected if those negatively connotated words are substituted with neutral ones. Our results confirm our main hypothesis that the use of guilt-connotated wording triggers lower approval for public debt and lower borrowing in an incentivized investment decision. Finally, we provide evidence that language is strategically used in the political arena using natural language processing and machine learning techniques on parliamentary speeches in the German Bundestag.

While the impact of adverse health shocks and the factors influencing charitable giving have been widely studied, research that combines these topics, especially focusing on a specific disease, is limited. Using a staggered treatment setup and Swedish register data, this study examines "ingroup altruism born of suffering": whether cancer patients are more inclined to donate to cancer charities and if they donate more. The results show a significant increase in the probability of donating to cancer charities after a diagnosis, a decrease in donations to non-cancer health charities, and no impact on non-health charities. Overall charitable giving increases significantly, mainly driven by donations to cancer charities. This pattern is consistent for both the probability and amount of giving. Additionally, donations to cancer charities continue to increase over time post-diagnosis, although the rate of increase slows down.

This paper delivers the first comprehensive analysis of how firms respond to carbon taxation in emerging economies. Our evidence builds on exhaustive administrative data from South Africa, the 13th largest emitter worldwide. The presented results are twofold. First, we establish stylized facts on the types of firms that are affected, how much revenue is generated from which sector and which share of national emissions the tax is able to capture. Second, we study the dynamic impact of the carbon tax on firm-level outcomes such as sales, profits, capital and labor inputs. We show that the design of the South African Carbon Tax leads to substantial heterogeneity across sectors in terms of how strongly firms are affected. Contrary to the concern that carbon taxes may impede economic growth we measure no negative effects on firm performance on average.

A central concern in climate policy making is that increasing carbon costs unilaterally would impair economic activity and competitiveness. Using comprehensive microdata, this paper provides first international firm-level evidence on the joint performance effects of carbon policies. Shadow prices of fossil energy sources are employed as an integral and internationally comparable measure of carbon costs. We evaluate the impact of carbon costs on various dimensions of economic activity for up to 3.1 million firms from 32 countries and 15 competitiveness-prone industrial sectors in the period 2000-2019. Carbon costs hardly hurt most industrial firms and predominantly elicited adaptation rather than relocation responses. Economically modest employment reductions were concentrated in capital-intensive firms and small firms in emissions-intensive, trade-exposed sectors, particularly in the EU. In these sectors, large and capital-intensive firms ramped up domestic investments in response to carbon cost increases, and small firms improved productivity. Profitability and exit probabilities were hardly affected.

We identify and examine a novel welfare channel of fuel economy standards through the interaction with public transit and households' location choices. A stricter emission standard for cars decreases the marginal cost of driving and triggers a shift in modal choice from public to private transport and a rise in carbon emissions. In the long run, the modal shift exacerbates the increase in the average commute length that results from lower driving costs, as well as traffic congestion. The annual welfare cost for a 50 percent emission reduction turns out 3.7 percent (24 USD p.c.) higher than when neglecting public transport. With a larger role of public transport as in Europe, this effect rises to 11.4 percent (72 USD p.c.). An alternative fuel tax policy, by contrast, induces a modal shift towards public transport and reduces the average commute, urban congestion and the welfare cost of emission reductions.

This paper studies the effects of a significant fuel tax increase on driving and CO2 emissions. Despite the prevalence of fuel taxes, causal evidence of the effect of fuel taxes on driving and emissions is limited, and the reasons why existing estimates vary remain unexplored. Our research directly addresses these gaps in the literature by exploiting exogenous variation provided by Finland’s 2012 energy tax reform. The reform increased the tax on diesel by almost 12 euro cents per litre, while the tax on gasoline was increased by less than 3 euro cents per litre. The reform allows us to utilize a quasi-experimental setting and compare the kilometers travelled by diesel and gasoline-powered cars to identify the impacts of fuel taxes. We employ a large data set of over 2.2 million cars and their odometer readings. Our credibly causal estimates indicate a clear reduction in the kilometers driven by diesel cars.

I develop a theory of the jointly optimal choice of nonlinear income taxes and commodity taxes which accounts for the presence of tourists. If commodity taxes are uniform, the Pareto efficient rate is the one that maximizes revenue from tourists. Impacts of a uniform commodity tax on residents are irrelevant, as they can always be compensated through income tax changes. However, the presence of tourists in the tax base overturns the classic Atkinson-Stiglitz result justifying uniform commodity taxation. Efficient rate differentiation is characterized by a Corlett–Hague-style rule which requires placing lower taxes on goods which tourists can more easily substitute for expenditures outside of the destination economy. Notably, the impact of commodity taxes on residents do not influence the pattern of efficient differentiation nor of the overall level of commodity taxation. Taxes should also be lower on goods consumed by tourists who are highly responsive at the extensive margin.

We study the behavioral responses, fiscal consequences, and housing market reactions that result from raising a tax on second homes. To this end, we compile data on German municipalities and apply staggered difference-in-differences methods. Our results suggest that people (massively) avoid the second home tax by changing their status of registration. As a consequence, we observe a rise in the number of primary residents registrations, which in turn increases formula-based intergovernmental transfers. We do not find evidence for housing market responses.

This study provides new econometric evidence on the effects of holiday vouchers on the development of the domestic tourism sector and on their advantages and disadvantages. We use an unexpected policy change that took place in Romania and made mandatory the provision of holiday vouchers for all public sector employees, which increased eight-fold the value of holiday vouchers used. Using novel firm level data on payments in holiday vouchers and difference-in-differences methods, we show that this policy significantly increased the revenues and employment of firms in tourism sector that used holiday vouchers compared to similar firms that did not use them. Regarding the underlying channels, we show that holiday vouchers increased tourism related economic activity in less touristic regions, but in the most touristic regions, they, mainly, increased prices and prolonged the touristic season. They also increased income declaration of the firms most exposed to informal economy.

Tourism is a key income source for many businesses and policy makers alike while also exerting negative externalities to local economies. We provide novel causal evidence on how local taxation of overnight stays among German local governments affects tourist flows. Using event study analysis and synthetic differences in differences we show that taxing overnight rates of hotels decreases hotel occupancy rates at the municipality level. Touristic towns, however, have less elastic demand responses to tourist taxes. Exploiting large-scale scraped hotel price data from booking.com, we show that there is indeed substantial pass-through of tourist taxes on hotel overnight rates.