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June 2023
No Taxation without Reallocation: The Distributional Effects of Tax Changes

This paper quantifies the distributional effects of tax changes in the United States. A functional vector autoregression framework is used to estimate the joint dynamics of tax shocks, the cross-sectional distribution of disposable income, and macroeconomic aggregates. I distinguish between changes in personal and corporate income taxes and investigate the distributional effects on families and business owners. I document that tax changes affect incomes along the distribution unevenly 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.
February 2023
February 2023
Back to the Future: What the 1970s Can Teach Us About Today’s Economic
Challenges | with Alexander Kriwoluzky | R & R European Economic Review

We investigate the importance of the monetary-fiscal policy mix during times of crisis by drawing insights from the Great Inflation of the 1960s and 1970s. Estimating a DSGE model with three monetary-fiscal policy regimes with a Sequential Monte Carlo (SMC) algorithm, we find that the macroeconomic dynamics during the Great Inflation were equally driven by passive monetary/passive fiscal policy and fiscal dominance. An analysis of the current macroeconomic milieu through the lens of our model shows that causes of inflation and the recipe to fight it depend on the policy regime in place. In a regime with monetary dominance, mark-up shocks mainly drive inflation and an increase in interest rate is effective, while in a fiscal dominant regime, transfers are the main cause of inflation and an increase in interest rates does not curb inflation.

Creating Expectations:  Propaganda and the Economic Recovery in Nazi
Germany| 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 2023


120 Years of Temperature Increases and Economic Growth
with Moritz Schularick, and Petr Sedláček 
Crisis and Inequality
with Òscar Jordá, Alan Taylor, Moritz Schularick, and Nadezhda Zhuravleva
Fiscal Capacity in the Euro Area
with Chi Hyun Kim 
Functional VARs for Macro: Mixed Frequency Considerations and Relationship
to Panel Approaches
with Chi Hyun Kim, and Frank Schorfheide 
Natural Disaster and Financial Stability: Evidence from 120 Years
with Moritz Schularick, and Petr Sedláček 
Wealth Inequality in Finland
with Chi Hyun Kim, Matti Mitrunen, Timm Prein, and Oskari Vähämaa

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