Current Research
Profit Taxation, R&D Spending, and Innovation
Co-Authors: Andreas Lichter, Max Löffler, Ingo Isphording, Thu-Van Nguyen and Felix Pöge
(forthcoming at AEJ: Economic Policy)
We study how profit taxes affect establishments’ R&D activities. Relying on detailed panel data of R&D-active firms in Germany over two decades, we exploit identifying variation induced by more than 10,000 municipal changes in the local business tax rate and federal tax reforms with locally varying effects. Using event study techniques, we find a sizable, negative effect of profit taxes on establishments’ total R&D spending and patents filed. Zooming into the innovation production process, we uncover substantial
heterogeneity in the impact of profit taxation for various R&D input factors, among firm
characteristics, and for different types of research projects.
Effect of Tax Increase on Plants' Total R&D Expenditures
Welfare Effect of Introducing a DI Mandate
Privatizing Disability Insurance
Co-Authors: Arthur Seibold and Sebastian Seitz
Public disability insurance (DI) programs in many countries face pressure to reduce their generosity in order to remain sustainable. In this paper, we investigate the welfare effects of giving a larger role to private insurance markets in the face of public DI cuts. Exploiting a unique reform that abolished one part of the German public DI system for younger cohorts, we find that despite significant crowding-in effects, overall private DI take-up remains modest. Moreover, private DI tends to be concentrated among high-income, high-education, and low-risk individuals. We do not find any evidence of adverse selection on unpriced risk. Finally, we estimate individual insurance valuations via a revealed preferences approach, a key input for welfare calculations. Taken at face value, the low observed willingness to pay of many individuals implies that providing coverage partly via a private DI market with choice improves welfare. However, we show that distributional concerns as well as individual risk misperceptions can provide grounds for justifying a full public mandate.
Spillover, Efficiency and Equity Effects of Regional Firm Subsidies
Co-Authors: Nils Wehrhöfer, Tobias Etzel
(forthcoming at AEJ: Economic Policy)
We analyze the effects of a large place-based policy, subsidizing up to 50% of the investment costs of manufacturing plants in East Germany. We show that a one-percentage-point decrease in the subsidy rate leads to a 1% decrease in manufacturing employment. We document
important local spillovers for the untreated construction and retail sectors, counties connected via trade, and local tax rates. There is no evidence for regional reallocation, within-firm spillover, or changes in commuting and residential decisions. The cost per job amounts to about $19,000. We show that local subsidies are substantially more effective in curbing regional inequality than
place-blind policies.
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.
