The Economic Costs of a Secessionist Conflict: The Case of Catalonia

Due to the pro-independence demands of part of its electorate, the political fit of Catalonia within Spain has given rise to notable political tensions over the last few years. This conflict has progressively affected several dimensions of Catalan society, including, potentially, the economy. The illegal referendum on independence, held in October 2017, marked the climax of political and social tensions, leading to a Constitutional crisis and further stoking the conflict as opposed to offering any hope of an early resolution. We analyze a complete set of margins potentially affected by the referendum, including real (aggregate demand and supply) and financial responses. Using a synthetic control method, we find strong evidence of the outflow of short-term bank deposits after the referendum; while, on the real side, we find evidence of responses in aggregate supply (number of capital increases and number of new firms registered)

(Uncontrolled) aggregate shocks or vertical tax interdependence? Evidence from gasoline and cigarettes

Besley and Rosen (1998) were the first researchers to test empirically for the presence of vertical tax externalities, examining the case of unit taxes on gasoline and tobacco. However, they did not take into account the price differences across states that arise because high cost areas pay less in real terms than low cost areas, since federal unit sales taxes on cigarettes and gasoline do not differ across states. Consequently, we propose that vertical tax competition can be estimated by using a federal tax variable that is expressed in real terms and thus shows crosssectional variation across states. To estimate real prices we deflate all financial variables using the House Price Index (HPI), which is disaggregated by states. This empirical strategy enables us to disentangle the vertical interdependence between state and federal tax rates from aggregate shocks over time. We use U.S. data from 1975-2006 on gasoline and tobacco taxes, and find significant horizontal tax competition, but no vertical tax reactions. The results are robust to the period analyzed

The role of tax system complexity on foreign direct investment

We present new cross-country empirical evidence that tax system complexity affects the location of international investment. The evidence comes from a database of foreign direct investment (FDI) bilateral flows for all OECD countries over the 2013–2016 period, and from the Doing Business survey, which collects several measures of tax system complexity and effective tax rates. By means of a gravity model, we consider the impact of destination and parent country characteristics on firm investment decisions. An increase in the difference between tax complexity in the home country and the destination country is related with an increase in FDI outflows from home to destination. We do not find any significant impact of tax rate differentials on FDI outflows