Tax Smoothing versus Tax Shifting

Household-specific growth rates of the tax base imply that the timing of tax collections determines the distribution of tax burdens and wealth across households. Changes in financial policy do not only shift taxes across generations, but also within cohorts. Institutional deficit constraints settle tax shifting conflicts in favor of individuals with high income growth. With distortionary taxes, policy makers trade off the wealth effects of financial policy and the efficiency cost of household-specific deadweight burdens. I apply the incidence analysis of financial policy to two examples: The financing of the German unification, and the timing of tax collections over the U.S. business cycle.Optimal Financial Policy; government debt; income distribution; time consistency

Debt Maturity without Commitment

I analyze how lack of commitment affects the maturity structure of sovereign debt. Governments balance benefits of default induced redistribution and costs due to income losses in the wake of a default. Their choice of short- versus long- term debt affects default and rollover decisions by subsequent policy makers. The equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that reflect the price impact of these decisions. The model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high, output low, or a cross default more likely. These predictions are consistent with empirical evidence.

Debt Maturity without Commitment

I analyze how lack of commitment affects the maturity structure of sovereign debt. Governments balance benefits of default induced redistribution and costs due to income losses in the wake of a default. Their choice of short- versus long-term debt affects default and rollover decisions by subsequent policy makers. The equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that reflect the price impact of these decisions. The model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high, output low, or a cross default more likely. These predictions are consistent with empirical evidence.debt, maturity structure, no commitment, default

Timing Tax Evasion

Standard models of tax evasion implicitly assume that evasion is either fully detected, or not detected at all. Empirically, this is not the case, casting into doubt the traditional rationales for interior evasion choices. I propose two alternative, dynamic explanations for interior tax evasion rates: Fines depending on the duration of an evasion spell, and different vintages of income sources subject to aggregate risk and fixed costs when switched between evasion states. The dynamic approach yields a transparent representation of revenue losses and social costs due to tax evasion, novel findings on the effect of policy on tax evasion, and a tractable framework for the analysis of tax evasion dynamics.

Starving the Beast? Intra-Generational Conflict and Balanced Budget Rules

A balanced budget requirement does not only prevent fiscal policy makers from smoothing tax distortions but also affects their preferred choice of government spending. The paper analyzes the conditions under which groups opposed to government spending might want to implement a balanced budget requirement in order to induce the government to spend less. It shows that relaxing a balanced budget requirement need not be associated with higher government spending.

Improving the SGP: Taxes and Delegation rather than Fines

We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an “economic-theory" perspective on optimal corrective measures with the “legalistic" perspective adopted in the SGP. We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.Stability and Growth Pact, spillover effects, policy failures, Pigouvian taxes, policy delegation

Improving the SGP: Taxes and Delegation rather than Fines

We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP. We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.Stability and Growth Pact; Spillover Effects; Policy Failures; Pigouvian Taxes; Policy Delegation

Improving the SGP: Taxes and Delegation Rather than Fines

We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP.We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.Stability and Growth Pact; spillover effects; policy failures; Pigouvian taxes; policy delegation

The Stability Pact - Rationales, Problems, Alternatives

We analyze economic rationales for, and possible alternatives to, the Stability and Growth Pact (SGP). We identify various cross-country spillover effects and domestic policy failures as potential rationales. The two sets of problems suggest different corrective measures, and different measures than those applied in the context of SGP. We contrast the “legalistic” perspective adopted in the Pact with a more incentive-based approach and discuss how the legalistic perspective gives rise to enforcement problems in connection with the implementation of the SGP’s sanctions.