Research

Abstract: Carbon pricing is a central policy instrument for reducing emissions, but governments face a trade-off: faster decarbonization can raise output losses and carbon leakage, while gradual implementation slows emission reductions. This paper studies how EU carbon policies have shaped firms’ adoption of abatement technologies and identifies the optimal trajectory to reach the EU’s 2050 net zero target, particularly in a unilateral context. I develop a dynamic heterogeneous-firm model in which forward-looking manufacturing firms choose when to adopt discrete abatement technologies under a gradually tightening carbon price. I estimate it using panel data on EU ETS firms from 2005-2019. The model rationalizes the low carbon prices of the 2010s as a consequence of gradual policy and firm anticipation. Emission reductions arise mainly from large, productive, and initially polluting firms. Anticipation of future tightening mitigates half of the short-run output losses in 2025 and two-thirds by 2050, keeping overall output losses below 2%. A moderately faster tightening could cut cumulative emissions by 15% at an additional cost of only 0.11% of output. Finally, because firms anticipate future policy changes, unilateral and global carbon pricing yield nearly identical effects on domestic output and carbon leakage.

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Abstract: This paper explores the long-term macroeconomic impact of start-up taxation reforms, focusing on a policy introduced by the Belgian government in 2016, that reduced the social security contribution of first employees for new startups. Using an event-study methodology, the analysis reveals outcomes that challenge the traditional free-entry condition commonly assumed in models of firm dynamics. Instead, the findings emphasize the role of the non-employer market as a critical stepping stone before firms enter the labor market. More than 75% of firms that enter the labor market start out as non-employer. The paper develops a novel model capable of capturing the observed labor market entry decision and evaluates its performance relative to conventional models. The study concludes by analyzing the long term macroeconomic implications of this start-up taxation reform.

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Abstract: This paper studies the importance of initial conditions on long-run firm performance. We analyze annual accounts data from 1985 to 2019 for all for-profit firms in Belgium. By modeling the autocovariance structure for firm productivity, we find that 20 years after incorporation still 15% of the dispersion is determined by the ex-ante factors: the conditions and characteristics of the firms at birth. The importance of the ex-ante factors becomes even more pronounced for the input factor employment (24%) than for productivity. Our findings hold steady within a structural model of firm dynamics, where we explore the role of adjustment costs in greater depth. Notably, we observe that adjustment costs contribute to a reduction in economic dynamism, thereby amplifying the importance of ex-ante conditions, more in terms of employment than for productivity. The adjustment costs thus explain the discrepancy between the results for employment and productivity. Lastly, we document that the recent trend in the decline in business dynamism aligns with a rising cost of adjustment and subsequent rising importance of the ex-ante conditions. 

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Greener Giants: Market Concentration and the Pace of Green Innovation

Energy reduction: Reallocation Within firms Between plants