Job Market Paper(s)

JMP Title: "On the Design of a Common European Fiscal Harmonization Agreement"

Abstract: Fiscal competition can bring large welfare losses and imply significant shifts in governments' tax and spending structures. Some form of fiscal coordination is thus commonly advocated in order to prevent such non-cooperative Nash equilibria. But how should EU policymakers design a fiscal harmonization agreement? Recent tax harmonization proposals have focused on corporate income tax harmonization. This paper proposes a different approach. Several policy scenarios are examined within an endogenous growth model with flexible labour supply calibrated for the EU economy. Two main messages emerge from the policy simulations. Firstly, capital income tax harmonization is no panacea. Indirect taxes, such as VAT, should become priority targets of fiscal reforms proposals. Secondly, expenditure side reforms are needed. Even limited EU budget increases and the introduction of a common European unemployment insurance system can go a long way in preventing significant welfare losses from fiscal competition.

Other Research

Working Papers:

Title: "On Structural Transformation and Public Spending Growth" (with Héctor Pifarré i Arolas)

Abstract: In this work, we contribute to the literature on the growth of public spending in Western economies with a novel mechanism that ties it to the structural transformation process. We argue that part of the expansion of social spending, the largest contributor to public spending growth and government size, is the result of the government replacing family-based transfers with public pensions. We develop a theoretical model in which, as a result of the structural transformation process, family-based intergenerational transfers decline unexpectedly. Following such a decline, a cohort of elderly individuals is left without savings or family-based transfers, to which the government responds with provision of poverty relief in the form of public pensions. We present a review of historical evidence on the levels and composition of government spending, and the historical development of pensions, that is consistent with our explanation.

Title: "Fiscal Federalism and Tax Competition: a Double-Edged Sword?"

(Updated version: presented at 25th Meeting on Public Economics, Valencia 2018 - Alexandre Pedrós Prize for best paper on Public Economics and Fiscal Federalism - SEBAP webpage - La Vanguardia article)

Abstract: Fiscal devolution, federalism or decentralization creates the possibility for tax competition between jurisdictions. In an endogenous growth model with capital and labour taxation where governments provide both productive goods and merit goods, we show that tax competition brings growth-maximizing policies. Yet, this translates into a 'race to bottom' for the taxation of the mobile factor, capital, together with a 'race to the top' for the taxation of immobile factor, labour. Hence, fiscal devolution limits the scope for redistribution and brings potentially large regional asymmetric effects. Against this background, we examine several possible tax harmonization scenarios that may be considered in the EU context where member states are decentralised jurisdictions. Capital tax harmonization avoids a race to the bottom in capital taxation but implies a race to the top in labour taxation. Only labour income tax harmonization can avoid the latter, while leaving room for a positive capital tax.

Title: "Fiscal Responses of EU countries from 1995 to 2016: debt limits and fiscal decentralization" (in progress, link to be posted soon)

Abstract: This paper addresses the influence of fiscal devolution, electoral budget cycles, fiscal rules and indebtedness conditions on the fiscal stance. We find three main policy patterns: the fiscal stance responds positively to increases in the debt service, shows a pro-cyclical behaviour and is negatively affected in years of parliamentary elections. Furthermore, a negative impact of expenditure decentralization on the fiscal stance is found, however more complex mechanisms may be at work behind this apparent relationship. We also find signs of fiscal sluggishness in responses to rising debt levels, before certain ratios of debt service to GDP are attained, as well as a positive impact of debt rules.

Title: ”Merit Good Provision and Tax Competition” (in progress)

Abstract: Jurisdictions competing for a mobile tax base generally engage in a race to bottom in the taxation of mobile factors. This is frequently accompanied by an an underprovision of public goods. In this paper, we explore the effects of tax competition on the provision of merit goods. We show that tax competition may entail asymmetric regional effects on the provision of local merit goods. Furthermore, if the provision of the merit good affects the labour-leisure choice of individuals, merit good provision will indirectly affect the rate of return on capital and governments will be faced with a trade-off between higher merit good provision and higher labour income taxation. In this context, asymmetric effects of tax competition can be further exacerbated or attenuated, depending on specific regional characteristics.

Work... in progress:

"Female labour participation and the growth of the Welfare State in Western Europe (with Héctor Pifarré i Arolas)

"Robots, Taxes and Cycles" (with Robert Forster) (early draft)

"A Fiscal Union for the EU: from tax harmonization to European basic income" (groundwork phase)

"Merit Good Provision and US Regional Divergence: the Role of Education" (groundwork phase)