Research

Job Market Paper

Taxes and Pay without Performance: Evidence from Executives
This paper contributes to the ongoing discourse on the taxation of top-income earners by empirically investigating the impact of tax policy changes on pay without performance. Using data on executive compensation in the United States, I compare the sensitivity of executive compensation to performance shocks beyond the executive’s control before and after a change in the federal and state tax rate. Performance shocks beyond the executive’s control are measured using exogenous export demand shocks. I find that the effect of taxes on pay without performance depends on the type of tax levied. Specifically, state tax hikes increase the sensitivity of executive compensation to performance shocks exogenous to executive effort. Conversely, changes in federal tax rates have a negative but statistically insignificant effect on pay without performance. Pay without performance changes most in response to state tax hikes for executives with greater mobility. Based on a Nash bargaining model, I outline that these heterogeneous findings can be explained by the importance of outside options for the pass-through of exogenous profit shocks to executive earnings. Firms need to increase compensation more in response to exogenous performance shocks after a state tax hike to retain the executive.

Working Papers

The Effect of Taxes on CEO Performance  (with Florian Buhlmann, Martin Ruf and Johannes Voget) - Submitted
In this paper, we investigate the effect of higher personal income taxes on CEO and firm performance in publicly traded US firms. In response to higher taxes on compensation, CEOs are less likely to reach performance goals and spend more time working in boards outside of their firm. At the same time, firm performance drops before eventually recovering as investment projects with below average profitability are disregarded and due to adjustments in CEO compensation. 

Publications

Collective memories on the 2010 European debt crisis (with Kai Konrad and Niklas Potrafke)

We examine whether collective memories on the aid and reform programs chosen to handle the 2010 European debt crisis differ between citizens from borrower and lender countries. We use new international survey data for non-experts and experts in member countries of the euro area. The results show that non-experts from borrower and lender countries remember aspects of the programs in different manners; indicating biases for assessments of how the crisis outcomes are perceived in borrower and lender countries. Nation-serving biases may well explain that the 2010 European debt crisis has reduced the sense of belonging rather than bringing European citizens closer together. 

Work in Progress 

Narratives about Fiscal Policy: Are Firms' Tax Preferences Driven by Redistribution or Fiscal Consolidation Motives? (with Philipp Dörrenberg, Fabian Eble, Davud Rostam-Afschar, Johannes Voget, Florian Buhlmann, Christopher Karlsson) - Draft available upon request

We examine how firm decision-makers’ attitudes towards taxes and a fiscal stimulus shift when exposed to narratives of redistribution and fiscal consolidation. Using a large-scale survey experiment (N=7,848), we show that framing taxes as payments of due debts increases the preference to pay taxes, whereas framing taxes as funds required to cover undue losses is largely ineffective, except for a notable tendency to favor raising the capital gains tax. We also observe a greater preference to pay taxes when decision-makers agree with the stimulus. Our findings on narratives and the channels affecting tax preferences have implications for fiscal policy communication.

Removing Innovation: The Spillover Effects of Tax-Induced Reallocation (with Theresa Bührle ) - Draft available upon request

This study investigates the impact of tax-induced reallocation of innovative activity on local economies. Leveraging US state-level research and development (R&D) tax credit changes over time, we analyze the reallocation of innovative activity within firm networks. We find a 2.8 percent decrease in inventor count at one firm location in response to a one-percentage-point increase in the average R&D credit rate at the three largest out-of-state establishments within the same firm network. The decline in innovative activity also generates spillover effects on surrounding firms. Our results suggest a 5 percent decrease in innovation of businesses in the same commuting zones that are not themselves exposed to R&D credit changes in other locations. The negative spillover effect is driven by a reduction in the number of new hires but not by inventors moving within the firm network. Our findings highlight the broader implications of state tax competition for inventor location and aggregate innovative activity.

The Effects of Social Housing in Berlin (with Sebastian Siegloch  and Maximilian Günnewig-Mönert )