Current Research

Profit Taxation, R&D Spending, and Innovation

Co-Authors: Andreas Lichter, Max Löffler, Ingo Isphording, Thu-Van Nguyen and Felix Pöge

We study how profit taxation affects plants’ R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987–2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants’ R&D spending with an implied long-run elasticity of -1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents.

Effect of Tax Increase on Plants' Total R&D Expenditures

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

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

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.

forthcoming at the Journal of Health Economics, [Discussion Paper]

Direct, Spillover and Welfare Effects of Regional Firm Subsidies

Co-Authors: Nils Wehrhöfer, Tobias Etzel

We analyze the effects of a large place-based policy, subsidizing up to 50% of investment costs of manufacturing firms in East Germany after reunification. We show that a 1-percentage-point decrease in the subsidy rate leads to a 1% decrease in manufacturing employment. We document important spillovers for untreated sectors in treated counties, untreated counties connected via trade and local taxes, whereas we do not find spillovers on counties in the same local labor market. We show that the policy is at least as efficient as cash transfers to the unemployed, but is more effective in curbing regional inequality.

Welfare Effects of Property Taxation

Co-Author: Max Löffler

We analyze the welfare implications of property taxation. Using a sufficient statistics approach, we show that the tax incidence depends on how housing prices, labor and other types of incomes as well as public services respond to property tax changes. Empirically, we exploit the German institutional setting with 5,200 municipal tax reforms for identification. We find that higher taxes are fully passed on to rental prices after three years. The pass-through is lower when housing supply is inelastic. Combining reduced form estimates with our theoretical framework, we simulate the welfare effects of property taxes and show that they are regressive.

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

Co-Author: Kurt Schmidheiny

We discuss important properties and pitfalls of panel-data event study designs. We derive three main results. First, binning of effect window endpoints is a practical necessity and key for identification of dynamic treatment effects. 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 events of different sign and intensity of the treatment, which are particularly interesting for research in labor economics and public finance. We show the practical relevance of our methodological points in a replication study.

Demand Shocks, Employment Effects and Local Labor Supply Elasticities

I exploit substantial variation in municipal business tax rates in Germany over a long time span to investigate how local labor supply responds to demand shocks. I demonstrate negative employment effects following business tax increases, in addition local unemployment increases and in-commuting decreases. The employment effects are particularly driven by worker groups which are regarded as more mobile: young, high-skilled, male employees in manufacturing firms.

[Draft coming soon]