Lea Fricke

Working Papers

Carbon Emissions and Redistribution: The Design of Carbon Tax Rebates
joint with Clemens Fuest and Dominik Sachs

We study optimal redistribution and carbon taxation in a Mirrlees framework. Households differ in their carbon footprint due to both (i) the overall level of spending and (ii) the composition of spending. Introducing a cap on carbon emissions reduces the social value of output, which lowers the efficiency costs of taxation and thereby strengthens the scope for redistribution. However, the optimal increase in redistribution is weaker than suggested by popular proposals for a carbon dividend. While the optimal rebate schedule over compensates low-income households and under compensates high-income households for their carbon tax burden, the rebate nevertheless rises with income. Quantifying the model for Germany, we find that the optimal rebate for the 90th income percentile is nearly three times that for the 10th percentile, whereas carbon tax payments are about seven times higher. This results in higher effective average tax rates at the top and lower ones at the bottom of the income distribution.

The Early Saver Catches the Low Rate: Mortgage Spreads and Life-Cycle Savings
joint with Peter Kress

This paper analyzes how mortgage pricing affects young households’ consumption, saving, and housing decisions. Compiling a novel dataset of mortgage offers in Germany, we document that mortgage interest rates increase with loan-to-value (LTV) ratio, with spreads up to 100 basis points. Through the lense of an incomplete-markets life-cycle model with an endogenous mortgage rate schedule, we can reconcile why young households build up substantial amounts of liquid wealth prior to homeownership despite the absence of a downpayment requirement. Calibrated to German micro data, the model is able to match empirical patterns of liquid wealth accumulation, leverage at home purchase, and the age profile of the transition into homeownership.