This paper examines the macroeconomic and distributional effects of the European Union’s transition to Net Zero emissions through a gradually increasing carbon tax. I develop a New Keynesian Environmental DSGE model with two household types and distinct energy and non-energy sectors. Five alternative uses of carbon tax revenues are considered: equal transfers to households, targeted transfers to Hand-to-Mouth households, subsidies to green energy firms, and reductions in labor and capital income taxes. In the absence of technological progress, the carbon tax policy induces a persistent increase in energy prices and a reduction in GDP, investment, and consumption. Headline inflation falls below zero in the medium run, reflecting weaker aggregate demand. Distributional outcomes vary significantly depending on the implemented revenue recycling scheme: targeted transfers are the most progressive but entail larger macroeconomic costs, while subsidies and tax cuts mitigate output and investment losses but are less effective in narrowing the consumption gap. A limited foresight scenario, in which agents learn about policy targets sequentially, generates more volatile adjustment paths and temporary inflationary spikes around announcements, but long-run outcomes remain close to the baseline.

Climate policy design must balance emissions mitigation with concerns for fairness, particularly as climate change disproportionately affects the poorest households within and across countries. Integrated Assessment Models used for global climate policy evaluation have so far typically not considered inequality effects within countries. To fill this gap, we develop a global Integrated Assessment Model representing national economies and subnational income, mitigation cost, and climate damage distribution and assess a range of climate policy schemes with varying levels of effort sharing across countries and households. The schemes are consistent with limiting temperature increases to 2 °C and account for the possibility to use carbon tax revenues to address distributional effects within and between countries. We find that carbon taxation with redistribution improves global welfare and reduces inequality, with the most substantial gains achieved under uniform taxation paired with global per capita transfers. A Loss and Damage mechanism offers significant welfare improvements in vulnerable countries while requiring only a modest share of global carbon revenues in the medium term. The poorest households within all countries may benefit from the transfer scheme, in particular when some redistribution is made at the country level. Our findings underscore the potential for climate policy to advance both environmental and social goals, provided revenue recycling mechanisms are effectively implemented. In particular, they demonstrate the feasibility of a welfare improving global climate policy involving limited international redistribution.

We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-specific RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.

We study the effects of Tax Authority (IRS) attention on a firm’s financial reporting. We explore whether firms institute a higher degree of accounting conservatism in response to IRS monitoring. Using data on IRS acquisition of public firms’ 10-K financial disclosures to proxy for IRS attention, we find that when firms are under IRS attention, they tend to initiate higher levels of unconditional and, to some extent, conditional accounting conservatism. We alleviate some of the endogeneity concerns by using pre- and post-IRS attention environments between the treated group (firms with IRS attention) and a propensity score that matches the control group of firms (no IRS attention). These results withstand several robustness tests and subsample analyses.

In Chapter 1, I combine longitudinal administrative firm-level data from Germany with 8,000 local tax changes for identification to show that local tax hikes (cuts) increase (decrease) the local manufacturing share. Firm-level results reveal that this is due to wage, employment, firm entry, and labor productivity in the service sector being more responsive to a tax shock than in manufacturing. With this evidence in mind, I calibrate a two-sector model with heterogeneous firms and profit tax to show that, owing to different structural parameters, a corporate tax cut disproportionately benefits service firms, contributing to the sectoral reallocation from manufacturing to service. In Chapter 2, we derive a European Herfindahl-Hirschman concentration index from 15 micro-aggregated country datasets. We show that European concentration rose due to a reallocation of economic activity towards large and concentrated industries. Over the same period, productivity gains from an increasing allocative efficiency of the European market accounted for 50% of European productivity growth while markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. In chapter 3, We study the consequences of the Covid-19 pandemic and related policy support on productivity. We employ an extensive micro-distributed exercise to access otherwise unavailable individual data on firm performance and government subsidies. Our cross-country evidence for five EU countries shows that the pandemic led to a significant short-term decline in aggregate productivity and the direct support to firms had only a limited positive effect on productivity developments.

We investigate how shareholder-debtholder conflict of interest affects the corporate tax avoidance using a unique setting of the affiliated and unaffiliated commercial bankers’ board representation. Consistent with the notion that board representation grants lenders’ access to private information that helps monitor and influence firms’ tax practice, we find that appointments of affiliated banker directors significantly reduce firms’ tax avoidance behavior, while appointing unaffiliated banker directors shows no such effect. The impact of affiliated banker directors on alleviating tax avoidance is stronger among firms with severer conflict of interest between shareholders and debtholders, specifically among firms with weaker corporate governance, higher financial leverage and higher CEO stock ownership.