taxation and international migration of superstars evidence from the european football market we analyze the effects of top tax rates on international migration of football players in 14 european countries since 1985 both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates with an elasticity of the number of foreign domestic players to the net of tax rate around one around 0 15 we also find evidence of sorting effects low taxes attract highability players who displace low ability players and displacement effects low taxes on foreigners displace domestic players those results can be rationalized in a simple model of migration and taxation with rigid labor demand jel f22 h24 h31 j44 j61 l83

conditional eurobonds and the eurozone sovereign debt crisis this paper proposes that all new euro area sovereign borrowing be in the form of jointly guaranteed eurobonds to avoid classic moral hazard problems and to insure the guarantors against default each country would pay a risk premium conditional on economic fundamentals to a joint debt management agency this suggests that these bonds be called euro insurance bonds while the sovereign debt markets have taken increasing account of the economic fundamentals the signal to noise ratio has been weakened by huge market volatility so undercutting incentives for appropriate reforms and obscuring economic realities for voters this paper uses an econometric model to show that competitiveness public and private debt to gdp and the fall out from housing market crises are the most relevant economic fundamentals formula based risk spreads based on these fundamentals would provide clear incentives for governments to be more oriented towards economic reforms to promote long run growth than mere fiscal contraction putting more weight on incentives that come from risk spreads than on fiscal centralization and the associated heavy bureaucratic procedures would promote the principle of subsidiarity to which member states subscribe the paper compares euro insurance bonds incorporating these risk spreads with other policy proposals copyright 2013 oxford university press

the impact of distressed economies on the eu sovereign market financially distressed economies inside the european union eu are being blamed for producing a general increase in borrowing costs this article analyzes the channels of default risk transmission within the eu countries using the information content in the sovereign credit default swap cds market we proceed in two directions first we test the existence of cross border volatility effects between the central and the peripheral eu countries second we explore the effect of distressed economies on the default and risk premium constituents of sovereign default swaps we show a significant volatility spillover from distressed to central european economic and monetary union emu economies this causality pattern leads to a significant impact on the default swap risk premia on average the risk premium accounts for approximately 42 of central emu spreads and 56 of the spreads for those countries outside of the emu the peripheral risk also affects the default component of central economies although its impact is lower

heterogeneous market beliefs fundamentals and the sovereign debt crisis in the eurozone type main xml id ecca12155 abs 0001 the unprecedented sovereign debt crisis across the eurozone has prompted a new generation of models with self fulfilling attacks on public debt the model presented in this paper shows that multiple equilibria arise as investors have no direct information and form heterogeneous rational beliefs about the government s sustainable limit of the solvency primary balance if beliefs of insolvency are sufficiently large then the government is bound to default although initial solvency conditions are satisfied several issues are discussed concerning the role of initial conditions fiscal shocks and the policy options to escape from the default domain

can state taxes redistribute income abstract the evidence presented in this paper supports the basic theoretical presumption that state and local governments cannot redistribute income since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions a relatively unfavorable tax will cause gross wages to adjust until the resulting net wage is equal to that available elsewhere the current empirical findings go beyond confirming this long run tendency and show that gross wages adjust rapidly to the changing tax environment thus states cannot redistribute income for a period of even a few years the adjustment of gross wages to tax rates implies that a more progressive tax system raises the cost to firms of hiring more highly skilled employees and reduces the cost of lower skilled labor a more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees since state taxes cannot alter net wages there can be no trade off at the state level between distribution goals and economic efficiency shifts in state tax progressivity by altering the structure of employment in the state and distorting the mix of labor inputs used by firms in the state create deadweight efficiency losses without achieving any net redistribution

uncovering the common risk free rate in the european monetary union summary we introduce longitudinal factor analysis lfa to extract the common risk free crf rate from a sample of sovereign bonds of countries in a monetary union since lfa exploits the typically very large longitudinal dimension of bond data it performs better than traditional factor analysis methods that rely on the much smaller cross sectional dimension european sovereign bond yields for the period 2006 2011 are decomposed into a crf rate a default risk premium and a liquidity risk premium our empirical findings suggest that investors chase both credit quality and liquidity and that they price double default risk on credit default swaps copyright 2013 john wiley sons ltd

tax competition and income redistribution an empirical analysis for switzerland tax competition is supposed to lead to thecollapse of the welfare state because first it willbecome difficult for a single jurisdiction to levy aredistribution tax upon the rich and mobile andsecond such a policy if undertaken in onejurisdiction will attract poor individuals from otherjurisdictions and erode internal redistributionpolicies in this paper the impact of personal incometaxes and transfers on residence decisions oftaxpayers is analyzed with swiss subfederal data therelationship of tax competition and the erosion of theswiss welfare state is tested with aggregate data onincome redistribution

taxation and the international mobility of inventors we study the eect of top tax rates on superstar inventors international mobility since 1977 using panel data on inventors from the u s and european patent oces we exploit the dierential impact of changes in top tax rates on inventors of dierent qualities superstar inventors location choices are signicantly aected by top tax rates in our preferred specication the elasticity to the net of tax rate of the number of domestic superstar inventors is around 0 03 while that of foreign superstar inventors is around 1 these elasticities are larger for inventors in multinational companies an inventor is less sensitive to taxes in a country if his company performs a higher share of its research there

measuring sovereign risk spillovers and assessing the role of transmission channels a spatial econometrics approach abstract we contribute to the literature on international risk spillovers by developing a unified framework based on spatial econometrics that enables us to address the following questions i what are the effective transmission channels real linkages and informational channels of international risk spillovers across countries and or regions ii what are the most dominant ones and iii which countries are most at risk for their environment and which are suffering the most from international exposure our analysis based on 41 advanced and emerging economies from 2008q1 to 2012q4 shows that among the considered channels for explaining international spillovers of sovereign bond spreads the informational channel is of utmost importance our results challenge previous findings from the literature in which the empirical strategy did not accommodate altogether important features of country spillovers such as the co existence of multiple transmission channels in the presence of contemporaneous and time lagged interactions ultimately our stress testing analysis reveals important insights on countries prone either to international spillovers international exposure or both at the regional and the worldwide level

are european sovereign bonds fairly priced the role of modelling uncertainty abstract this paper examines the extent to which large swings of sovereign yields in euro area countries during the debt crisis can be attributed to fundamentals focusing on the inherent uncertainty in bond yield models we show that the outcomes are strongly affected by modelling choices with regard to i the confidence bands for the model prediction ii the assumption whether the model coefficients are similar across countries or not iii the sample selection iv the inclusion of financial variables and v the choice of time varying coefficients these choices affect the explanatory power of macro fundamentals and the extent of mispricing

income segregation and local progressive taxation empirical evidence from switzerland this study investigates spatial income segregation in fiscally decentralized urban areas the theoretical part proposes the progressivity of local income taxes as a new theoretical explanation for income segregation the empirical part studies how income tax differentials across municipalities affect the households location decisions i use data from the swiss metropolitan area of basel that contains tax information on all moving households in 1997 the location choice of the households is investigated within the framework of the random utility maximization model different econometric specifications of the error term structure such as conditional logit nested logit and multinomial probit are compared the empirical results show that rich households are significantly and substantially more likely to move to low tax municipalities than poor households this result holds after controlling for alternative explanations of segregation social interactions and distance from the central business district are established as other major factors for income segregation households in general tend to choose locations close to other households like themselves

tax induced mobility evidence from a foreigners tax scheme in switzerland abstract we study location choice and residential mobility responses to local income taxes exploiting a special tax regime which applies to foreign employees residing in switzerland the institutional setting used generates a deterministic duration threshold at 5 years of stay in the country at which the local tax rates an individual faces simultaneously change in all municipalities we exploit this exogenous variation by applying a fuzzy regression discontinuity design to merged survey and administrative individual level data a dynamic location choice model allows us to derive testable hypotheses of individuals location choices and mobility decisions our estimated treatment effects provide causal evidence for tax induced residential choices and tax induced intra national mobility

transmission of government default risk in the eurozone abstract this paper analyzes the reasons behind the rising ten year government bond spreads in the eurozone during the recent euro debt crisis we develop a structural vector autoregressive model that allows us to test whether the upsurges in the spreads reflect breaks in the instantaneous shock propagation mechanisms between the spreads contagion changing dynamical effects or changing country specific risk factors especially a new approach to test the stability of the instantaneous shock propagation mechanisms is introduced our results show that although contagion appears as the single most important reason for the increasing spreads there are notable differences between the countries for example and ireland spain and italy see statistically significant increases in their country specific risk factors

spread the news the impact of news on the european sovereign bond markets during the crisis we investigate how news affected domestic interest spreads vis a vis germany and how it propagated to other countries during the recent crisis period thereby distinguishing between the so called giips countries and other european countries we make original use of the eurointelligence newsflash to construct news variables based on the amount of news that is released on a country on a given date we find that more news on average raises the domestic interest spread of giips countries since september 2009 in addition we find that it leads to an increase in the interest spreads of other giips countries the magnitude of this effect is related to cross border bank holdings a split of news into bad and good news shows that the upward pressure on domestic and foreign interest spreads is driven by bad news we also find spillovers of bad news from giips countries onto non giips countries however the magnitude of these spillovers is substantially smaller than that to other giips countries

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

taxation and migration evidence and policy implications in this article we review a growing empirical literature on the effects of personal taxation on the geographic mobility of people and discuss its policy implications we start by laying out the empirical challenges that prevented progress in this area and then discuss how recent work has made use of new data sources and quasi experimental approaches to credibly estimate migration responses this body of work has shown that certain segments of the labor market especially high income workers and professions with little location specific human capital may be quite responsive to taxes in their location decisions when considering the implications for tax policy design we distinguish between uncoordinated and coordinated tax policy we highlight the importance of recognizing that mobility elasticities are not exogenous structural parameters they can vary greatly depending on the population being analyzed the size of the tax jurisdiction the extent of tax policy coordination and a range of non tax policies while migration responses add to the efficiency costs of redistributing income we caution against over using the recent evidence of sizeable mobility responses to taxes as an argument for less redistribution in a globalized world

sovereign spreads in the eurozone which prospects for a eurobond in this paper we provide new evidence on the determinants of sovereign yield spreads and market sentiment effects in the eurozone in order to evaluate the rationale for a common eurobond jointly guaranteed by eurozone member states we find that default risk is the main driver of yield spreads suggesting small gains from greater liquidity fiscal fundamentals matter in the pricing of default risk but only as they interact with other countries yield spreads that is with the global risk that the market perceives more importantly the impact of this global risk variable is not constant over time a clear sign of contagion driven by shifts in market sentiment this evidence points to a discontinuity in the disciplinary role of financial markets if markets can stay irrational longer than a country can stay solvent then the role of yield spreads on national bonds as a fiscal discipline device is considerably weakened and issuing eurobonds can be economically justified carlo favero and alessandro missale

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

sovereign debt guarantees and default lessons from the uk and ireland 1920 1938 abstract we study the daily yields on irish land bonds listed on the dublin stock exchange during the years 1920 1938 we exploit irish events during the period and structural differences in land bonds to tease out a measure of investors credibility in a uk sovereign guarantee using ireland s default on intergovernmental payments in 1932 we find a premium of about 43 basis points associated with uncertainty about the uk government guarantee we discuss the economic and political forces behind the irish and uk governments decisions pertaining to the default our finding has implications for modern day proposals to issue jointly guaranteed sovereign debt further in view of all the historical circumstances it is not equitable that the irish people should be obliged to pay away these moneys eamon de valera 12 october 1932

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

economic policy uncertainty and risk spillovers in the eurozone this paper focuses on the impact of economic policy uncertainty on risk spillovers within the eurozone and contributes to these two growing literatures to this end we adapt the two step procedure developed by adrian and brunnermeier forthcoming in the framework of financial systemic risk to the sovereign bond market accordingly we attempt i to measure the extent to which distress affecting one given country s sovereign spreads can affect the eurozone s bond market as a whole and then ii to identify the determinants of risk spillovers by estimating a panel data model with macroeconomic state variables and economic policy uncertainty epu indices introduced by baker et al 2013 as regressors epu indices considered concern the four largest eurozone countries i e germany france italy and spain as well as the united states the model is estimated with quarterly data for ten countries representing the bulk of debt issuances within the eurozone over a period ranging from q4 2008 to q2 2013 which is characterized by historically high dispersion of sovereign bond spreads either across time or across countries our results support the idea that economic policy uncertainty in the core economies of the eurozone i e germany and france as well as in the largest periphery countries i e italy and spain can create an environment likely to exacerbate the transmission of risk arising from abnormal developments of individual countries sovereign spreads to the eurozone bond market as a whole in this respect our results plead for larger effort of eurozone leaders to reduce the uncertainty surrounding their economic policy in periods of crisis not only to avoid adverse effects on their own economies but also to reduce the risk of a destabilization of the eurozone sovereign bond market as a whole

revisiting optimal call policy for convertibles when a company calls its convertible bonds it typically must give the bondholders a notice period of approximately 30 days to decide whether to convert the bonds this important institutional detail substantially affects the optimal call policy for convertible bonds when the company calls the bonds it fixes the price at which bondholders can redeem them effectively giving bondholders a 30 day put option the optimal time to call the convertibles minimizes the value of the conversion option net of the put option this optimization problem is solved here and a simple decision rule for the company results this solution contains those of previous researchers as a special case

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

how does liquidity affect government bond yields the paper explores the determinants of yield differentials between sovereign bonds using euro area data there is a common trend in yield differentials which is correlated with a measure of aggregate risk in contrast liquidity differentials display sizeable heterogeneity and no common factor we propose a simple model with endogenous liquidity demand where a bond s liquidity premium depends both on its transaction cost and on investment opportunities the model predicts that yield differentials should increase in both liquidity and risk with an interaction term of the opposite sign testing these predictions on daily data we find that the aggregate risk factor is consistently priced liquidity differentials are priced for a subset of countries and their interaction with the risk factor is in line with the model s prediction and crucial to detect their effect

the european sovereign debt crisis the origin and propagation of the european sovereign debt crisis can be attributed to the flawed original design of the euro in particular there was an incomplete understanding of the fragility of a monetary union under crisis conditions especially in the absence of banking union and other european level buffer mechanisms moreover the inherent messiness involved in proposing and implementing incremental multicountry crisis management responses on the fly has been an important destabilizing factor throughout the crisis after diagnosing the situation we consider reforms that might improve the resilience of the euro area to future fiscal shocks

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

bunching and non bunching at kink points of the swedish tax schedule recent microeconometric studies of taxpayers responsiveness to taxation have shown that intensive margin labor supply and earnings elasticities typically are modest and sometimes equal to zero however a common view is that long run responses might still be large since micro estimates are downward biased owing to optimization frictions in this paper we estimate the taxable income elasticity at a very large kink point of the swedish tax schedule using the bunching method during the period of study the change in the log net of tax rate reached a maximum value of 45 6 interestingly we obtain a precise elasticity estimate of zero for wage earners at this large kink the size of the kink allows us to derive tighter bounds on the long run elasticity than previous studies if wage earners on average tolerate 1 of their disposable income in optimization costs the upper bound on the long run taxable income elasticity is 0 39 we also evaluate the performance of the bunching estimator by performing monte carlo simulations

tax avoidance and the deadweight loss of the income tax traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on forms of compensation and patterns of consumption the full deadweight loss is easily calculated using the compensated elasticity of taxable income to changes in tax rates because leisure excludable income and deductible consumption are a hicksian composite good microeconomic estimates imply a deadweight loss of as much as 30 of revenue or more than ten times harberger s classic 1964 estimate the relative deadweight loss caused by increasing existing tax rates is substantially greater and may exceed 2 per 1 of revenue

migration and optimal income taxes abstract the issue addressed in this paper is the optimal taxation of incomes earned in the home economy and of incomes earned abroad when people can migrate as a preliminary the optimal taxation of home incomes when there is migration and no taxation of foreign incomes is discussed then in a more general setting we deal with optimal taxation of different kinds of labour when another kind of labour is not taxable and show how this bears on the taxation of foreign incomes the last sections of the paper analyse a simple model in which people choose between taxable labour at home taxable labour abroad and untaxable labour a condition is found implying that the optimal tax on foreign income is higher than on the home income of a person of equal utility

relocation of the rich migration in response to top tax rate changes from spanish reforms a spanish reform granted regions the authority to set income tax rates resulting in substantial tax differentials using administrative data we find that conditional on moving taxes have a signi

granger causality in peripheral emu public debt markets a dynamic approach our research aims to analyze the possible existence of granger causal relationships in the behavior of public debt issued by peripheral member countries of the european economic and monetary union emu with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009 with this goal in mind we make use of a database of daily frequency of yields on 10 year government bonds issued by five emu countries greece ireland italy portugal and spain covering the entire history of the emu from its inception on 1 january 1999 until 31 december 2010 in the first step we explore the pair wise granger causal relationship between yields both for the whole sample and for changing subsamples of the data in order to capture the possible time varying causal relationship this approach allows us to detect episodes of significant increase in granger causality between yields on bonds issued by different countries in the second step we study the determinants of these episodes analyzing the role played by different factors paying special attention to instruments that capture the total national debt domestic and foreign in each country

determinants of sovereign bond yield spreads in the emu an optimal currency area perspective in the light of the recent financial crisis we take a panel cointegration approach that allows for structural breaks to the analysis of the determinants of sovereign bond yield spreads in nine economies of the european monetary union we find evidence for a level break in the cointegrating relationship moreover results show that i fiscal imbalances namely expected government debt to gdp differentials are the main long run drivers of sovereign spreads ii liquidity risks and cumulated inflation differentials have non negligible weights but iii all conclusions are ultimately connected to whether or not the sample of countries is composed of members of an optimal currency area oca in particular we establish i that results are overall driven by those countries not passing the oca test and ii that investors closely monitor and severely punish the deterioration of expected debt positions of those economies exhibiting significant gaps in competitiveness

migration and wage effects of taxing top earners evidence from the foreigners tax scheme in denmark this paper analyzes the eects of income taxation on the international migration and earnings of top earners using a danish preferential foreigner tax scheme and populationwide danish administrative data this scheme introduced in 1991 allows new immigrants with high earnings to be taxed at a preferential at rate for a duration of three years we obtain two main results first the scheme has doubled the number of highly paid foreigners in denmark relative to slightly less paid and therefore ineligible foreigners this translates into a very large elasticity of migration with respect to 1 minus the average tax rate on foreigners between 1 5 and 2 second we nd compelling evidence of a negative eect of the scheme induced reduction in the average tax rate on pre tax earnings of foreign migrants at the individual level this nding can be rationalized by a matching frictions