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October 2022
No Taxation without Reallocation: The Distributional Effects of Tax Changes

This paper investigates the dynamic effects of tax changes on the cross-sectional distribution of disposable income in the United States using the functional vector autoregression framework of Chang, Chen, and Schorfheide (2021). I distinguish between changes in personal and corporate income taxes and quantify the distributional effects on families and business owners. I document that tax changes affect incomes along the distribution differently and that the family status and the source of income matters. Tax reductions benefit high incomes and disadvantage lower incomes. Entrepreneurs and families benefit more from tax cuts than individuals without business income and non-families.
Fatal Austerity: The Economic Consequences of Heinrich Brüning | with Alexander Kriwoluzky, Moritz Schularick, Lucas ter Steege

This paper studies the most fateful austerity episode in history: Chancellor Brüning’s budget cuts and tax increases in Germany between 1930 and 1932. We introduce a new dataset on German government finances and macroeconomic variables and employ narrative records to identify the causal effects of austerity. We show that Brüning’s belt-tightening aggravated the Great Depression. Without austerity, GDP would have been higher by 4.5 percent and unemployment down by 3.3 million people in 1932, a year with two crucial elections that eventually paved the way for Hitler.
September 2022
September 2022
Active or Passive? Revisiting the Role Of Fiscal Policy in the Great Inflation | with Alexander Kriwoluzky

What role did fiscal policy play during the Great Inflation? We estimate a DSGE model with three distinct monetary/fiscal policy regimes using a Sequential Monte Carlo (SMC) algorithm to evaluate the posterior distribution. In contrast to standard sampling algorithms, SMC enables us to determine the monetary/fiscal policy mix by sampling simultaneously from all regions of the parameter space, which makes comparing model fit across regimes unnecessary. A differentiated perspective results: pre-Volcker macroeconomic dynamics were similarly driven by passive monetary/passive fiscal policy and fiscal dominance. Fiscal policy actions, especially government spending, were critical in the pre-Volcker inflation build-up.

Creating Expectations | with Alexander Kriwoluzky, Andrea Papadia, Moritz Schularick 

If the present behavior of forward-looking economic agents is driven by their expectations about the future, can governments influence the economy by creating expectations? More precisely, can governments, by skillfully managing and guiding the public’s perception of present and future policies, boost activity and employment in the present without actually spending much? Do words speaklouder than deeds after all?


We study this question in the context of one of the most consequential macroeconomic success stories of the 20th century that has, to date, defied the explanations advanced within the literature: the recovery of the German economy from the Great Depression under the Nazis from 1933 onwards. Revisiting the causes of the German recovery in the 1930s, our project asks if the role of fiscal policy as a driver of the recovery has to be fundamentally reassessed once the effects of expectation creation are considered. The central hypothesis we explore is that Nazi communication and propaganda efforts created the perception of large present and future fiscal spending and thereby boosted the effectiveness of the fiscal stimulus much beyond its actual size.

May 2022
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