When a region successfully attracts a firm by offering subsidies, the firm often commits itself to performance targets in terms of employment. In this paper, we interpret these firm-specific targets as a consequence of incomplete information. We analyze a model of two regions that compete for a firm, assuming that the firm's productivity is ex ante unknown. We show that performance targets often induce overemployment in high-productivity firms, and that tax credits are often superior to lump-sum payments. Moreover, when regions differ in wage rates, the low-wage region wins the bid and has a higher surplus than under complete information. Finally, we show that, under incomplete information, bidding might not lead to efficient firm location. 

We analyze optimal business tax policy when some firms are able to escape taxation by moving abroad. In contrast to the existing literature, we assume that the true number of mobile firms is ex ante unknown. While the government may learn from the firms' location responses to past tax rate changes, firms may anticipate this and adjust their choices accordingly. We find that incomplete information on mobility substantially affects the properties and the implications of equilibrium policy choices. First, the government may find it optimal to set a tax rate that triggers partial firm migration but full revelation of the true number of mobile firms. Second, we show that, if the firms' outside option is attractive (i.e., relocation cost and foreign tax rates are low), expected tax rates and expected firm migration are higher if the degree of mobility is unknown. Third, there is a positive value of learning, i.e., commitment on future tax rates cannot increase the government's expected revenue. However, if the government can commit to a rule-based learning mechanism, i.e., credibly tie its future tax policy to present policy outcomes, it may obtain a Pareto improvement. 

Using a new panel data set comprising publication and appointment data for 889 German academic economists over a quarter of a century, we confirm the familiar hypothesis that publications are important for professorial appointments, but find only a small negative effect of appointments on subsequent research productivity, in particular if one controls for the presence of top researchers ('stars'). Surprisingly, the research output of stars drops significantly more than the average in the aftermath of an appointment. We also provide some evidence of the effects of the fundamental reform of economics in Germany and of affirmative action procedures.

In this paper we study the effects of monetary policy under endogenous conservatism. We find a feedback mechanism of macroeconomic outcomes on policy conservatism to destabilize the economy or at least to contribute to considerable adjustment costs. Central bank independence turns out to be a suitable solution to this problem.

We assess the impact of a Swedish regulatory change, which required businesses with any business-to-consumer transactions, whether by cash or card, to use a certified electronic cash register (ECR), on reported revenue. To do this, we use administrative data on the monthly reported revenue of all affected firms and a staggered difference-in-differences approach. Our findings indicate that there was an immediate increase of about 2.7–4.3% in reported revenue following the implementation of a certified ECR. However, the effect was temporary and diminished to zero after just a few months, which indicates that firms found innovative methods to underreport their revenue.

Airbnb and other home-sharing platforms have been facing increasing regulation over the past years, mainly in the form of restricting short-term rentals through day caps. In contrast, as one of the first countries in the world, Denmark applied a collaborative strategy: In 2018, the government negotiated an agreement with Airbnb about the transmission of income data from the platform to the tax agency. We analyze how this data-sharing agreement affected hosts' behavior on the platform, using a difference-in-differences approach with Sweden as a counterfactual. We find that the agreement reduced hosts’ propensity to list property on the platform by 14%, while increasing listing prices by 11%. Our results indicate that platform exits were mostly limited to single-property hosts. In contrast, hosts with many properties and those in areas with initially low Airbnb penetration made their rental objects more often available and managed to increase the number of bookings. Overall, the findings imply that the data-sharing agreement not only helped to increase tax compliance but also led to a commercialization and spatial re-organization of short-term renting in Denmark.

This research note investigates the impact of a rental-income tax on hosts using Airbnb in Norway. We find that the cost increase implied by the tax did not induce hosts to exit the platform, nor did it lead to an increase in rental prices. These findings support the conjecture that the tax was insufficiently enforced, as it relied on taxpayers to self-report their rental income.

Home sharing platforms have experienced a rapid growth over the last decade. Following negative publicity, many cities have started regulating the short-term rental market. Regulations often involve a cap on the number of days a property can be rented out on a short-term basis. We draw on rich data for short-term rentals on Airbnb and for the long-term rental market to examine the impact of short-term rental regulations with a day cap on various stakeholders: hosts, guests, the platform provider, and residents. Based on a difference-in-differences design, we document a sizable drop in Airbnb activity. Interestingly, not only targeted hosts (i.e., hosts with reservation days larger than the day cap), but also non-targeted hosts reduce their Airbnb activity. The reservation days of non-targeted hosts decrease between 26.27% and 51.89% depending on the treatment. Targeted hosts experience a similar decline. There is, nevertheless, significant non-compliance: more than one third of hosts do not comply with enacted short-term rental regulations. Additional analyses show that few properties are redirected from short-term rental to long-term rental use and that there is no significant drop in long-term rents. Drawing on a theoretical model, we tie the estimated effects to changes in stakeholders' welfare: Regulations significantly reduce the welfare of hosts, and the loss ranges between 46.30% and 9.02%. The welfare loss of the platform provider is proportional to the loss of the hosts. Welfare of guests decreases moderately ranging between 4.5% to 4.1%. The welfare of residents increases minimal. These results question the effectiveness and desirability of the studied short-term rental regulations.

The (socio-)psychological concepts of individual aspiration for conformity and consistency are integrated into the rational choice framework. By using this integrative approach, it is shown that, after a shock, the aspiration for conformity results in a steady state that deviates from the homo oeconomicus's behavior toward the consumption of the peer group, whereas the aspiration for consistency leads to the result that the steady-state consumption is not reached at once. With the combination of these effects, a new consumption path is derived. After a shock, the individual consumption converges step by step to the new steady-state consumption. 

The political blessings of federalism are the core of our discussion. These benefits can be operationalized as a decrease in the number of outvoted people in a federal system with majority voting which is an important source of regime satisfaction. The approach originates from the work of Roland Pennock who developed a similar methodology about 50 years ago. Measuring inverse regime satisfaction by the maximum of the outvoted, our results show that regime satisfaction decreases if total population rises. Additionally, the share of the maximum outvoted decreases if the top level cooperates with lower-level jurisdictions and if all jurisdictions of one level are included. However, while the inclusion of an additional lowest-level jurisdiction always reduces the relative number of the outvoted, the effect of including other levels depends on the structure of jurisdictions already intertwined. 

Multinational corporations increasingly use royalty payments for intellectual property rights to shift profits globally. This not only threatens the tax base of countries worldwide but also affects the nature of tax competition. Against this background, our theoretical analysis suggests a surprising solution to the problem of curbing profit shifting without suffering major outflows of capital: a strictly positive withholding tax on royalty payments is both the Pareto-efficient solution under international coordination and the optimal unilateral response. If internal debt is sufficiently responsive, governments can even implement optimal targeting. Then, the royalty tax closes the profit-shifting channel, while all competition for mobile capital is relegated to internal-debt regulation. Our results question the ban on royalty taxes in double tax treaties and the EU Interest and Royalty Directive.

The increasing use of intellectual property as a means to shift profits to low-tax jurisdictions or jurisdictions with so-called ‘patent boxes’ is a major challenge for the corporate tax base of medium- and high-tax countries. Extending a standard tax competition model for capital-enhancing technology, royalty payments, and profit shifting, this paper suggests a simple fix: It is optimal to set a withholding tax on (intra-firm) royalty payments equal to the corporate tax rate and deny any deductibility of royalties. As the tax applies to the full payment, the problem of identifying the arm’s-length component in a digital economy (OECD BEPS Action 1) does not apply. Most importantly, the denial of royalty deductions is the Pareto-efficient solution under coordination and the unilaterally optimal policy under competition for mobile capital. In the latter case, a weakened thin capitalization rule is a crucial part of the policy package in order to avoid negative investment effects. Our results question the ban of royalty taxes in double tax treaties and the EU Interest and Royalty Directive.

We estimate vector error-correction models and vector autoregression models, respectively, for 13 European countries (1970-2005) to examine the-widely debated-relationship between population growth and economic growth. While for most European countries we find a positive long-run relationship, some countries show a negative linkage. We also analyze short-term interdependencies and find evidence that the relationship between productivity and reproductivity may have changed over time. 

The paper investigates the effects of intra-family talent transmission when human capital exhibits indivisibilities and parental financing of education involves borrowing constraints. Positive talent correlation reduces social mobility but steady state inequality and macroeconomic history-dependence are not affected. 

This paper analyzes how ethnic diversity affects the provision of public goods in democratic and non-democratic societies when political parties compete for voter support by offering a mix of private and public goods. Our model implies that increasing diversity that leads to more heterogeneous preferences for public goods decreases the provision of public goods in democracies, where political power is distributed equally among citizens, while there is a weaker or no effect in non-democracies, where political power is distributed unequally among citizens. When measuring diversity by ethnic fractionalization and public good provision by either levels of government expenses, expenditures on health, or life expectancy, we indeed observe a negative association between diversity and the provision of public goods in democracies but no or only a weak association in non-democracies.

This paper examines the welfare effects of powerful labour unions when the government levies a uniform tax rate – as is currently the case in most OECD countries – and firms are heterogeneous with respect to productivity. I show that an increase in the bargaining power of labour unions can decrease the welfare loss generated by restriction of the tax policy and provide conditions under which powerful labour unions decrease the likelihood that firms will move abroad. I also reproduce the well-known effect whereby powerful labour unions decrease corporate tax rates if firms are mobile. 

Redistributive taxation and education subsidies are common policies intended to foster education attendance of poor children. However, this paper shows that in an intergenerational framework, these policies can raise social mobility only for some investment situations but not in general. I also study the impact of both policies on the aggregate skill ratio and inequality. While redistributive taxation can raise social mobility but at the same time never reduces inequality, education subsidies can, under some conditions, achieve both simultaneously. Unfortunately, these conditions necessarily require a population in which the skill ratio is already quite high. 

We discuss the economic aspects of fairness defined here in the benchmark case as equality of producer and consumer rents. We show that there are significant differences considering private and public goods, especially with regard to a potential self-damaging of the initially disadvantaged, resulting from the implementation of the equality-rule. Furthermore, the potential welfare loss to society will be substantially larger in the field of public rather than of private goods.