Selected Publications

On Event Studies and Distributed-Lags in Two-Way Fixed Effects Models: Identification, Equivalence, and Generalization 

Co-Author: Kurt Schmidheiny

Journal of Applied Econometrics, 2023, 38(5), 695-713.

We discuss the properties and pitfalls of panel-data event study designs. We derive three main results. First, assuming constant treatment effects before and/or after some event time, also known as binning, is a natural restriction imposed on theoretically infinite effect windows. Binning identifies dynamic treatment effects in the absence of never-treated units and is particularly suitable in case of multiple events. Second, event study designs with binned endpoints and distributed-lag models are numerically identical leading to the same parameter estimates after correct reparametrization. Third, classic dummy variable event study designs can be generalized to models that account for multiple treatments of different signs and varying intensities, which are common in public and labor economics. We demonstrate the practical relevance of our methodological points in an application studying the effects of unemployment benefit duration on job search effort.

[Article (with corrections from November 29, 2023)] [Online Appendix] [Replication files]

Social capital and the spread of Covid-19: Insights from European countries

Co-Authors: Alina Bartscher, Sebastian Seitz, Michaela Slotwinski and Nils Wehrhöfer 

Journal of Health Economics, 2021, Vol. 80

We explore the role of social capital in the spread of the recent Covid-19 pandemic in independent analyses for Austria, Germany, Italy, the Netherlands, Sweden, Switzerland and the UK. Exploiting within-country variation, we show that areas with a one standard deviation increase in social capital leads to 12% and 32% fewer Covid-19 cases per capita accumulated from mid-March until mid-May. Using Italy as a case study, we find that high-social-capital areas exhibit lower excess mortality and a decline in mobility. Our results have important implications for the design of local containment policies in future waves of the pandemic.


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The Long-Term Costs of Government Surveillance: Insights from Stasi Spying in East Germany

Co-Authors: Andereas Lichter and Max Löffler 

Journal of the European Economic Association, 2021, Vol. 19(2), pp. 741–789

We investigate the long-run effects of government surveillance on civic capital and economic performance, studying the case of the Stasi in East Germany. Exploiting regional variation in the number of spies and administrative features of the system, we combine a border discontinuity design with an instrumental variables strategy to estimate the long-term, post-reunification effect of government surveillance. We find that a higher spying density led to persistently lower levels of interpersonal and institutional trust in post-reunification Germany. We also find substantial and long-lasting economic effects of Stasi surveillance, resulting in lower income, higher exposure to unemployment, and lower self-employment.

[Article] [Supplementary data] [Slides] [Replication files]

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Do Higher Corporate Taxes Reduce Wages? Micro Evidence from Germany  

Co-Authors: Clemens Fuest and Andreas Peichl    

American Economic Review, 2018, Vol. 108(2), pp. 393–418

This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities exploiting 6,800 tax changes for identification. Using event study designs and difference-in-differences models, we find that workers bear about one-half of the total tax burden. Administrative linked employer-employee data allow us to estimate heterogeneous firm and worker effects. Our findings highlight the importance of labor market institutions and profit-shifting opportunities for the incidence of corporate taxes on wages. Moreover, we show that low-skilled, young, and female employees bear a larger share of the tax burden. This has important distributive implications.

[Article] [Online Appendix] [Slides] [Replication files]

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The Elasticity of Taxable Income in the Presence of Deduction Possibilities  

Co-Authors: Philipp Doerrenberg and Andreas Peichl

Journal of Public Economics, 2017, Vol. 151, pp. 41-55

Several recent studies show that the elasticity of taxable income (ETI) is not a sufficient statistic for the welfare costs of taxation due to factors such as tax-base shifting. This paper provides an additional argument demonstrating the non-sufficiency of the ETI, namely tax deductions. Building on a theoretical framework which incorporates deductions in a standard optimal-tax model, we show that the ETI is not sufficient for welfare analysis if (i) deductions generate externalities and if (ii) deductions are responsive to tax-rate changes.While the first condition should arguably hold true for the majority of tax deductions, we provide an empirical examination of the second condition. Relying on rich German panel data from administrative tax records, we exploit several tax reforms that were implemented in Germany between 2001 and 2008. Our main estimates indicate an overall ETI between 0.54 and 0.68 and an elasticity of deductions with respect to the net-of-tax rate of about −0.9. These results suggest that the ETI is not sufficient to calculate the welfare cost of taxation.


Exporting and Labor Demand: Micro-level evidence from Germany

Co-Authors: Andreas Lichter and Andreas Peichl 

Canadian Journal of Economics, 2017, Vol. 151(4), pp. 41-55

It is widely believed that globalization increases the extent of employment and wage responses to economic shocks. In this paper, we investigate the effect of firms’ exporting activities on the wage elasticity of labor demand. Using rich, administrative linked employer–employee panel data from Germany and destination-specific industry-level information on trade flows, we explicitly control for self-selection into exporting and endogeneity concerns. Overall, we find that exporting has a significant positive effect on the (absolute value of the) unconditional wage elasticity of labor demand. In line with our hypothesis, we further show that the effect is particularly strong for those plants that export a significant share of their output to low- and medium-income countries, hence facing relatively more price-elastic product demand.


The Own-Wage Elasticity of Labor Demand: A Meta-Regression Analysis  

Co-Authors: Andreas Lichter and Andreas Peichl 

European Economic Review, 2015, Vol. 80, pp. 94-119

The own-wage elasticity of labor demand is a key parameter in empirical research and policy analysis. However, despite extensive research, estimates of labor demand elasticities are subject to considerable heterogeneity. In this paper, we explore various dimensions of this heterogeneity by means of a comprehensive meta-regression analysis, building on information from 151 different studies containing 1334 estimates in total. Our results demonstrate heterogeneity in various dimensions and to a considerable extent: the magnitude of the elasticity depends on the theoretical model applied and features of the workforce. Moreover, we find that labor demand has become more elastic over time, and is particularly elastic in countries with low levels of employment protection legislation. Furthermore, we find heterogeneity due to the empirical specification of the labor demand model, characteristics of the dataset and publication bias.


Partisan Tax Policy and Income Inequality in the U.S., 1979-2007 

Co-Authors: Oliver Bargain, Mathias Dolls, Herwig Immervoll, Dirk Neumann,
Andreas Peichl and Nico Pestel 

Economic Inquiry, 2015, Vol. 53(2), pp. 1061–1085

This paper assesses the effects of U.S. tax policy reforms on inequality over around three decades, from 1979 to 2007. It applies a new method for decomposing changes in government redistribution into (1) a direct policy effect resulting from policy changes and (2) the effects of changing market incomes. Over the period as a whole, the tax policy changes increased income inequality by pushing up the income share of high-income earners (the top 20%).


Comparing Inequality Aversion across Countries When Labor Supply Responses Differ 

Co-Authors: Oliver Bargain, Mathias Dolls, Dirk Neumann and Andreas Peichl 

International Tax and Public Finance, 2014, Vol. 21(5), pp. 845-873

We analyze to which extent social inequality aversion differs across nations when controlling for actual country differences in labor supply responses. Towards this aim, we estimate labor supply elasticities at both extensive and intensive margins for 17 EU countries and the US. Using the same data, inequality aversion is measured as the degree of redistribution implicit in current tax-benefit systems, when these systems are deemed optimal. We find relatively small differences in labor supply elasticities across countries. However, this changes the cross-country ranking in inequality aversion compared to scenarios following the standard approach of using uniform elasticities. Differences in redistributive views are significant between three groups of nations. Labor supply responses are systematically larger at the extensive margin and often larger for the lowest earnings groups, exacerbating the implicit Rawlsian views for countries with traditional social assistance programs. Given the possibility that labor supply responsiveness was underestimated at the time these programs were implemented, we show that such wrong perceptions would lead to less pronounced and much more similar levels of inequality aversion.


Tax-Benefit Revealed Social Preferences in Europe and the US 

Co-Authors: Oliver Bargain, Mathias Dolls, Dirk Neumann and Andreas Peichl 

Annals of Economics and Statistics, 2014, Vol. 113/114, pp. 257-289

We follow the inverted optimal tax approach to characterize and compare “tax-benefit revealed” social preferences in 17 EU countries and the US. Following BARGAIN et al. [2013], we invert the optimal income taxation model on the distributions of net and gross incomes and use labor supply elasticities consistently estimated on the same data. The present paper focuses on new outputs of particular interest for the current policy debate on in-work versus traditional social transfers. Results are as follows: We find that revealed marginal social welfare functions verify minimal consistency checks and, notably, respect Paretianity overall. An exception is due to the treatment of the working poor in countries with standard, demogrant transfers. We illustrate for some countries how the recent policy trend in Continental and Nordic Europe tends to correct this “anomaly” through redistributive reforms in favor of the working poor. Finally, we compare revealed and stated social preferences using direct survey information and suggest explanations for the apparent discrepancies. 


Labor Demand Effects of Rising Electricity Prices: Evidence for Germany 

Co-Authors: Michael Cox, Andreas Peichl and Nico Pestel 

Energy Policy, 2014, Vol. 74, pp. 266-277

Germany continues to play a pioneering role in replacing conventional power plants with renewable energy sources. While this might be beneficial with respect  to environmental quality, it also implies increasing electricity prices. The extent to which this is associated with negative impacts on employment depends on the interrelationship between labor and electricity as input factors in the production process. In this paper, we estimate cross-price elasticities between electricity and heterogeneous labor for the German manufacturing sector. We use administrative linked employer–employee micro-data combined with information on sector-level electricity prices and usage over the period 2003–2007. We find positive, but small conditional cross-price elasticities of labor demand with respect to electricity prices, which means that electricity as an input factor can be replaced by labor to a limited extent when the production level is held constant. In the case of adjustable output, we find negative unconditional cross-price elasticities, implying that higher electricity prices lead to output reductions and to lower labor demand, with low- and high-skilled workers being affected more than medium-skilled. Resulting adverse distributional effects and potential overall job losses may pose challenges for policy-makers in securing public support for the German energy turnaround. 


Is soccer good for you? The motivational impact of big sport events on the unemployed

Co-Author: Philipp Doerrenberg

Economics Letters, 2014, Vol. 123 (1), pp. 66-69  

We examine the effect of salient international soccer tournaments on the motivation of unemployed individuals to search for employment using the German Socio Economic Panel 1984–2010. Exploiting the random scheduling of survey interviews, we find significant effects on motivational variables such as the intention to work or the reservation wage. Furthermore, the sporting events increase perceived health as well as worries about the general economic situation.


Fiscal Union in Europe? Redistributive and Stabilising Effects of a European Tax-Benefit System and Fiscal Equalisation Mechanism 

Co-Authors: Oliver Bargain, Mathias Dolls, Clemens Fuest, Dirk Neumann,
Andrea Peichl and Nico Pestel 

Economic Policy, 2013, Vol. 28(75), pp. 375-422

The current debt crisis has given rise to a debate concerning deeper fiscal integration in Europe. The view is widespread that moving towards a ‘fiscal union’ would have stabilizing effects in case of macroeconomic shocks. We study the economic effects of introducing two elements of a fiscal union: an EU-wide tax and transfer system and a fiscal equalization mechanism. Using the European tax-benefit calculator EUROMOD, we exploit representative household micro data from 11 eurozone countries to simulate these policy reforms and study their effects on the income distribution and automatic stabilizers. We find that replacing one third of the national tax-benefit systems with a European system would lead to significant redistributive effects both within and across countries. These effects depend on income levels and the structures of existing national systems. The EU system would particularly improve fiscal stabilization in credit constrained countries absorbing 10–15% of a macroeconomic income shock. Introducing a fiscal equalization mechanism would redistribute revenues from high to low income countries. However, the stabilization properties of this system are ambiguous. The results suggest that it might be necessary for Europe to explore alternative ways of improving macroeconomic stability without redistributing income ex ante.


Welfare, Labor Supply and Heterogeneous Preferences: Evidence for Europe and the US 

Co-Authors: Oliver Bargain, Andre Decoster, Mathias Dolls, Dirk Neumann and Andreas Peichl

Social Choice and Welfare, 2013, Vol. 41(4), pp. 789-817

Following the report of the Stiglitz Commission, measuring and comparing well-being across countries has gained renewed interest. Yet, analyses that go beyond income and incorporate non-market dimensions of welfare most often rely on the assumption of identical preferences to avoid the difficulties related to interpersonal comparisons. In this paper, we suggest an international comparison based on individual welfare rankings that fully retain preference heterogeneity. Focusing on the consumption-leisure trade-off, we estimate discrete choice labor supply models using harmonized microdata for 11 European countries and the US. We retrieve preference heterogeneity within and across countries and analyze several welfare criteria which take into account that differences in income are partly due to differences in tastes. The resulting welfare rankings clearly depend on the normative treatment of preference heterogeneity with alternative metrics. We show that these differences can indeed be explained by estimated preference heterogeneity across countries—rather than demographic composition.


The Politician's Wage Gap - Insights from German Members of Parliament  

Co-Authors: Andreas Peichl and Nico Pestel  

Public Choice, 2013, Vol. 156(3-4), pp. 653-676

Using a unique dataset of German members of parliament (MPs), this paper analyzes the politicians’ wage gap (PWG). After controlling for observable characteristics as well as accounting for election probabilities and campaigning costs, we find a positive income premium for MPs which is statistically and economically significant. Our results are consistent with the citizen candidate model, with a PWG of 35%–65% when comparing MPs to citizens occupying executive positions. However, it shrinks to zero when restricting the control group to top level executives.


Distributional Consequences of Labor-demand Shocks: The 2008-09 Recession in Germany

Co-Authors: Oliver Bargain, Herwig Immervoll and Andreas Peichl

International Tax and Public Finance, 2012, Vol. 19(1), pp. 118-138

The distributional consequences of the recent economic crisis are still

broadly unknown. While it is possible to speculate which groups are likely to be

hardest hit, detailed distributional studies are still largely backward-looking due to a lack of real-time microdata. This paper studies the distributional and fiscal implications of output changes in Germany 2008–2009, using data available prior to the economic downturn. We first estimate labor demand on 12 years of detailed, administrative matched employer-employee data. The distributional analysis is then conducted by transposing predicted employment effects of actual output shocks to household-level microdata. A scenario in which labor demand adjustments occur at the intensive margin (hour changes), close to the German experience, shows less severe effects on the income distribution compared to a situation where adjustments take place through massive layoffs. Adjustments at the intensive margin are also preferable from a fiscal

point of view. In this context, we discuss the cushioning effect of the tax-benefit

system and the conditions under which German-style work-sharing policies can be successful in other countries.


Accounting for Labor Demand Effects in Structural Labor Supply Models  

Co-Author: Andreas Peichl 

Labour Economics, 2012, Vol. 19(1), pp. 129-138

When assessing the effects of policy reforms on the labor market, most studies only focus on labor supply. The interaction of supply and demand is not explicitly modeled, which might lead to biased estimates of potential labor market outcomes. This paper proposes a straightforward method to remedy this shortcoming. We use information on firms' labor demand behavior and feed them into a structural labor supply model, completing the partial analysis of the labor market on the microdata level. We show the performance and relevance of our extension by introducing a pure labor supply-side reform, the workfare concept, in Germany and simulating the labor market outcome of the reform. We find that demand effects offset about 25% of the positive labor supply effect of the policy reform.