Lea Fricke

Working Papers

Carbon Pricing and Redistribution [old version]
joint with Clemens Fuest and Dominik Sachs

We show that carbon pricing fundamentally alters the equity-efficiency trade-off, shifting optimal policy toward greater redistribution. We study optimal redistribution and carbon pricing in an optimal income taxation model with non-homothetic demand, where households differ in carbon footprints through both spending levels and the composition of their consumption baskets. Carbon pricing separates the effective marginal tax rate from the welfare-relevant labor wedge: labor supply reductions reduce not only tax revenue, but also emissions. This lowers the welfare cost of redistribution. The optimal policy therefore increases redistribution, but not as much as a lump-sum carbon dividend would. Instead, the optimal allocation is implemented by a rebate schedule that rises with income. In a quantitative application to Germany, the optimal rebate at the 90th income percentile is nearly three times that at the 10th percentile, whereas carbon tax payments are about eight times as large. The resulting carbon policy is therefore strongly progressive.

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.

Publications