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Published Articles

 

     

Working Paper

 

"Business taxes and the electoral cycle," - joint with Nadine Riedel
Journal of Public Economics, Elsevier, vol. 115(C), pages 48-61.

 

In this paper Nadine Riedel and I assess whether the timing of elections affects tax policy choices. To do so, we exploit information on the German local business tax which is set autonomously by German municipalities. As the dates for local council elections vary across German states, the data allows us to disentangle effects related to the timing of elections from common trends. The findings support the notion of a political cycle in tax setting as the growth in local business tax rates is significantly reduced in the election year and the year prior to the election, while it significantly increases in the year after the election. This pattern turns out to be robust against a number of sensitivity checks.

 

"Sub-national deficits in European countries: The impact of fiscal rules and tax autonomy,"
European Journal of Political Economy  Volume 34, June 2014, Pages 86–110

 

This paper empirically examines how fiscal rules and tax autonomy influence deficits of sub-national sectors across European countries. I use a new panel-data set to measure tax autonomy and the stringency of fiscal rules for EU15 regional and local government sectors over the period 1995 to 2008. I apply an instrumental variables approach to obtain an unbiased estimate of the impact of fiscal rules on deficits. I use political variables describing the central governments characteristics as instruments for fiscal rules at the sub-national level. The results show that the effectiveness of fiscal rules and tax autonomy depends on the constitutional structure. Fiscal rules decrease deficits only in unitary countries. Deficits of sub-national sectors in federations can be avoided through tax autonomy.

 

"Strategic fiscal interaction across borders: Evidence from French and German local governments along the Rhine Valley," - joint with Edoardo di Porto and Aurélie Cassette
Journal of Urban Economics, Elsevier, vol. 72(1), pages 17-30.

 

My co-authors Aurelie and Edoardo contribute with me in our article to the literature on local tax interactions. Its novelty lies in its focus on the interactions of local governments across national borders. We use panel data for the French and German municipalities in the Rhine Valley for the period 2000–2007. The local governments of each country influence firms’ overall tax burdens, but the tax instruments available at the local level differ. We estimate panel models that distinguish between the effects of competing municipalities belonging to the same country and belonging to the other country. Our empirical model shows that local jurisdictions along borders choose their business tax rates based on those of their domestic neighbors and that foreign fiscal policy does not have an impact on the local domestic tax setting behavior in these contexts.

 


 

New Projects and Work in Progress

 

 

Bailout at Work: Short-run Effects on Local Fiscal Policy - with Alejandro Esteller-Moré

 

The Political Economy of Business Tax Forecasts - with Nadine Riedel and Philipp Breidenbach

 

Intergovernmental Fiscal Capacity Building

 

"Relocation of the Rich: Migration in Response to Top TaxRate Changes from Spanish Tax Reforms" - joint with David R. Agrawal

 

Using individual level administrative data from Social Security records and a recent decentralization of the individual income tax rates to regional governments, David and Dirk demonstrate in various ways that location choices of high-income individuals are related to differentials in income taxes across regions. Conditional on moving, taxes have a signi cant eff ect on the location choice. A one percent increase in the net of tax rate for a region relative to others increases the probability of moving to that region by 1.5 percentage points. This relationship can be seen in the following graph which we have in the paper:

The paper then derives a formal theoretical model of tax revenues with mobility in order to interpret the magnitudes of the empirical results.  This allows the paper to discuss the changes in revenue (and revenue maximizing top tax rates) due to the migration response, which is novel in this literature. Our model implies that the increase in tax revenue due to higher tax rates is larger than the loss in tax revenue from the outflow of migration.

 

This graph illustrates the effect: the blue bars represent the mechanical loss (gain) due to lower (higher) taxes, the red ones an effect due to the elasticity of taxable income, and the green one our estimated migration effect.

 

 

"'Hold that Ghost': Using Notches to Identify Manipulation of Population-Based Grants" - joint with Jordi Jofre and Albert Solé (revision requested, Journal of Public Economics)

In this project, we study the incentives of local governments to misreport the information used to implement a formula transfer. We focus on population, in theory the easiest variable to verify by the grantor. We identify the effects of transfers on population over-reporting taking profit of notches in the transfer scheme, which is based on weighted population with weights increasing at specific population thresholds.

That's what we find:

We document an excess mass of municipalities at the right of the notch threshold and a density hole to the left of it. Several pieces of evidence point that cheating (rather than real population responses) is the mechanism at work.


 

"Overlapping political budget cycles," with Ronny Freier, Marc-Daniel Moessinger, and Mustafa Yeter

 

We advance the literature on political budget cycles by testing separately for cycles in expenditures for elections in the legislative and the executive. Using municipal data, we can separately identify these cycles and account for general year effects. For the executive branch, we show that it is important whether the incumbent re-runs. To account for the potential endogeneity associated with this decision, we apply a unique instrumental variables approach based on age and pension eligibility rules.

We find sizable and significant effects in expenditures before council elections and before joint elections when the incumbent re-runs.

 

 

"Who's Coming to the Rescue? Revenue-Sharing Slumps and Implicit Bailouts During the Great Recession" - with Albert Solé

 

This paper analyzes the distribution of discretionary transfers from higher tiers of government in the process of fiscal adjustment in local jurisdictions which were hit by a negative revenue shock in formula transfers. Spanish local governments experienced a 30% fall in their revenue-sharing revenues at the beginning of the Great Recession. We use a `difference-in-discontinuities' design to identify the causal effect of that shock on the amount of discretionary grants provided by three higher tiers of government (i.e., central, regional, and provincial) and on other budget items (i.e., spending and taxation). We identify these effects using an exogenous variation in formula transfers, as the losses during the crisis of municipalities above the 5,000 population threshold were greater than the losses of those below this threshold. We find that, on average, municipalities above and below the 5,000 inhabitant threshold did not differentially adjust their budgets during the crisis. Rather, we find that for the most indebted municipalities, a substantial share of the shock was absorbed by discretionary grants provided by regional and provincial governments.