Means-Tested Subsidies and Market Power: Evidence from a French Heat Pump Program (with Paul Dutronc-Postel and Étienne Fize), Draft available upon request

Abstract: We use a theoretical framework, a regression discontinuity design and a discrete choice model to evaluate the distributional consequences of an environmental subsidy under imperfect competition. Our empirical setting is the largest heat pump subsidy program in France (Ma Prime Rénov’), amounting to €3bn of annual public spending. The scheme splits eligible households into income groups, with subsidy level declining with income. Leveraging discontinuities in the subsidy schedule at income thresholds, we find that heat pump prices differ across income groups by 1.3 times the subsidy differential. Our theoretical framework identifies two mechanisms for this result, with opposing effects on relative prices: first, means-testing enables price discrimination across income categories. This adds to the progressivity of the scheme, provided demand elasticity is higher among low-income households. Secondly, the effect on prices of the subsidy differential itself can be attenuated by incomplete pass-through within each sub-market. Estimating a structural model of demand for heat pumps, we find that a limited effect of price discrimination and high pass-through of the subsidy combine into higher progressivity, when discrimination is allowed. Accounting for this mechanism in policy design is however non trivial, as the sign and magnitude of the effects depend on several demand and supply primitives: market power, elasticity and curvature of the demand curves in each income group.

Hidden distribution in lifetime earnings: the role of differential mortality (with Simon Rabaté and Maxime Tô),  IFS working paper

Abstract: Differences in life expectancy between gender and income groups are large and generate significant implicit redistribution in lifetime earnings through pension systems. We use administrative data on the universe of private sector wage earners in France to quantify these effects. We establish two main results. In terms of between gender redistribution, we find that differential mortality – life expectancy at 55 is 5.7 years higher among women than among men – reduces lifetime income inequality between men and women: absent this differential in life expectancy, the pension gap between men and women would be 72% higher, in a lifetime perspective. Second, within gender, high income earners benefit from hidden lifetime redistribution due to higher life expectancy. We find a life expectancy gradient of 7.2 years between the extremes of the distribution among men, 1.8 years among women. Among men, this hidden redistribution more than offsets the overall progressivity of the pension system.