What is the optimal mix of carbon and labor income taxes in a transition toward net-zero emissions? I build a model of directed technical change in which an emission limit renders the use of fossil energy socially costly. In the long run, when the net-zero emission limit is binding, an optimal policy makes extensive use of carbon taxes. A subsidy on labor helps stabilize production. In the short run, the policy implications differ sharply. Labor is taxed to reduce economic activity and emissions. The carbon tax, instead, should not rise as steeply. This allows the economy to benefit from fossil research while knowledge spillovers from the fossil to the green sector mitigate the costs of a green transition.
Recent evidence points to an increase in consumers’ willingness to pay for sustainable goods, i.e., social responsibility. What is the optimal policy response to such a shift in preferences? Advancing social responsibility suggests a demand-driven transition to sustainable production. This paper argues, however, that basic needs and income inequality pose an obstacle. Therefore, (i) lump-sum transfers alter the share of sustainable production, and (ii) social responsibility exacerbates consumption inequality. In the model, inequality renders labor income taxes part of the optimal environmental policy for all levels of social responsibility. Greater social responsibility entails a policy shift away from corrective taxation towards redistribution. The aggravation of consumption inequality turns the policy focus to equity. As a consequence, redistribution arises as the central pillar of the optimal environmental policy.
Joint with Maarit Olkkola, Philipp Barteska, and Michael Rieser (Revise and Resubmit). Journal of Health Economics
We show that the first nationwide mass vaccination campaign against measles increased educational attainment in the United States. Our empirical strategy exploits the variation in exposure to the childhood disease across states right before the Measles Eradication Campaign of 1967–68, which reduced reported measles incidence by 90 percent within two years. Our results suggest that mass vaccination against measles increased the years of education on average by about 0.1 years for males in the affected cohorts. Their college graduation rate increased by approximately two percentage points.
Completing the Banking Union with a European deposit insurance scheme: Who is afraid of cross-subsidization?
Joint with Jacopo Carmassi, Johanne Evrard, Laura Parisi, André F. Silva, Michael Wedow (2020). Economic Policy, 35(101):41-95.
This paper investigates the impact and appropriateness of establishing a fully mutualized European deposit insurance scheme (EDIS) using a unique supervisory micro-level data set on euro area banks’ covered deposits and their other liabilities. We find that an ex-ante funded deposit insurance fund (DIF) with a target size of 0.8% of euro area covered deposits would be sufficient to cover losses even in a severe banking crisis. We then derive risk-based contributions to the DIF based on the different bank- and country-specific factors, showing that they can take into account the relative riskiness of banks and banking systems to tackle moral hazard. We also find that smaller and larger banks would not excessively contribute to EDIS relative to the amount of covered deposits in their balance sheet. Finally, we show that there would be no unwarranted systematic cross-subsidization within EDIS in the sense of some banking systems systematically contributing less than they would benefit from the DIF.