Thiess Buettner

Labor Market Effects of Economic Integration - The Impact of Re-Unification in German Border Regions

Abstract This paper exploits the significant reduction in impediments to labor mobility in the process of German re-unification in order to identify labor supply shocks in the West German labor market. The focus is on the quasi-experiment of the border removal in the regions situated at the German-German border that faced a massive increase of cross-border labor supply. The results indicate that despite a gain in employment, the border removal was accompanied by a decline in wages and an increase in unemployment relative to other West German regions.

Efficient Revenue Sharing and Upper-Level Governments: Theory and Application to Germany

Recent literature has emphasized that redistributive grant systems may tend to internalize fiscal externalities arising from tax competition. This paper further explores the conditions under which local grant systems enforced by the state government will enhance efficiency. A system of redistributive grants among governments is introduced into a standard model of tax competition. This basic model is then extended in order to allow for variations in the government objectives at the state level. A subsequent empirical analysis of local tax policy exploits the experience with local fiscal revenue sharing in Germany. The results suggest that attempts of state level governments to extract fiscal resources from the local revenue sharing system exert an upward pressure on tax rates.

The Impact of Taxes and Public Spending on the Location of FDI: Evidence from FDI-flows within Europe

In a place to place analysis of bilateral FDI flows the average company tax burden, the statutory corporation tax rate, as well as the cost of capital are used to capture the tax incentives. In addition, indicators of public spending in general and with regard to different functions of government and rankings of competitiveness related to public sector activities are used to measure the role of public service provision. The results show significant effects of tax incentives, in particular, the marginal tax burden and the statutory tax rate prove jointly significant. However, only weak indications of a countervailing effect of public expenditures are found.

Tax Status and Tax Response Heterogeneity of Multinationals' Debt Finance

This paper analyzes how corporate taxation affects the capital structure of subsidiaries of multinational companies. The emphasis is on firm characteristics that proxy for the tax status of a subsidiary, which is crucial for the tax responsiveness of firms. Based on a comprehensive panel of German multinationals, we find that the tax sensitivity of the capital structure is significantly affected by several firm characteristics. Our results imply that well-known non-debttax shields such as depreciation allowances and loss carryforwards reduce the tax sensitivity of the debt-to-capital ratio. We also find that a higher probability of experiencing losses reduces the tax-rate sensitivity of debt financing.

The Effects of Pre-announced Consumption Tax Reforms on the Sales and Prices of Consumer Durables

This paper utilizes a unique micro data set on consumer durables to study the effect of consumption tax reforms on the time path of consumption. The dataset reports the monthly sales of individual products and their consumer prices in 22 European countries, which enacted numerous consumption tax reforms in recent years. We implement a reduced form specification for sales that allows us to test theoretical predictions by a standard inter-temporal model of consumer choice under different assumptions about the pass-through of taxes into prices. Our identification strategy exploits the trading of individual products in multiple countries. The results document that changes in baseline consumption tax rates are fully and quickly shifted into consumer prices and exert very strong effects on the time path of consumption. We find that a one percentage point increase in consumption taxes causes an inter-temporal shift in consumption by 3 or more percent. In addition, purchases of durable goods increase temporarily by about 2 percent in the last month before a tax increase.This paper studies the effects of consumption tax reforms on prices and the time path of consumption spending in EU countries utilizing micro-level data on the monthly unit sales and prices of consumer durables. The identification strategy exploits the trading of identical products in multiple countries. The results show that tax-rate changes are fully and quickly shifted into prices and strongly affect the time path of consumption. The empirical findings for consumption spending indicate that tax rate changes exert temporary effects shortly before implementation, which are more than reverted after implementation. Quantitatively, we find that sales increase by about 2.5% in the last month before and drop by almost 5% after implementation if the tax rate increases by one percentage point.

Tax Planning of Married Couples and Intra-Household Income Inequality

This paper examines tax planning of married couples under separate taxation. A theoretical analysis uses a family decision-model with a household public good to show that the secondary earner might veto against tax planning if the realization of tax savings increases intra-household income inequality. The empirical analysis exploits a specific feature of the German tax system, which allows married couples to save taxes by deviating from the default symmetric payroll-tax treatment and assigning a favorable tax treatment to the primary earner and an unfavorable tax treatment to the secondary earner. Based on a representative random sample of individual tax files, the empirical results confirm the role of the income distribution. Opting for a tax-minimizing treatment is found to be less likely if this is associated with larger losses in the net income of the secondary earner. While this holds irrespective of which of the spouses has higher earnings, couples where the wife is the primary earner display a general reluctance to assign the favorable tax treatment to the wife.

Improvements and Future Challenges for the Research Infrastructure in Public Finance

The paper briefly surveys available data sources and discusses future developments relevant for empirical public finance in Germany. It starts from the notion that public finance deals with decisions of various agents, not only governments, but also private households and firms. Therefore, empirical research needs different types of data. Government decisions are to some extent captured in terms of the budgetary statistics, even though these statistics have shortcomings with regard to the quality of public service provisions and the revenue instruments. To study the decisions of the other agents individual level data is required. While some progress has been made, recently, the combination of various datasets at the individual level is a key priority.