Contributions in Merlin

In this paper I study whether citizens’ tax morale (and, more broadly, citizens’ attitudes towards the state) can be affected by past institutions, focusing on the role of historical fiscal capacity. Exploiting the features of the tax collection system of a pre-unification state in XIX Century Italy I identify differences in local historical fiscal capacity (as proxied by geographical proximity to a tax collector) and map them into contemporary tax morale, as measured by evasion of the TV Tax in 2014. Exploiting only variation in historical fiscal capacity that arises within matched pairs of neighbouring towns on the border of tax districts, I find imprecisely estimated and arguably small differences in tax morale today between towns where fiscal capacity was different. Investigating the mechanisms of transmission, I provide evidence that phenomena associated with structural transformation are likely to have halted the persistence of the historical fiscal capacity effect.

In a model inspired by neuroscience, we show that constrained optimal perception encodes lottery rewards using an S-shaped encoding function and over-samples low-probability events. The implications of this perception strategy for behavior depend on the decision-maker’s understanding of the risk. The strategy does not distort choice in the limit as perception frictions vanish when the decision-maker fully understands the decision problem. If, however, the decision-maker underrates the complexity of the decision problem, then risk attitudes reflect properties of the perception strategy even for vanishing perception frictions. The model explains adaptive risk attitudes and probability weighting as in prospect theory and, additionally, predicts that risk attitudes are strengthened by time pressure and attenuated by anticipation of large risks.

Return event studies generally involve several firms but there are also cases when only one firm is involved. This makes the relevant testing problems, abnormal return (AR) and cumulative abnormal return (CAR), more difficult since one cannot exploit the multitude of firms (by using a relevant central limit theorem, say) to design hypothesis tests. We propose a permutation test which is of nonparametric nature and more generally valid than the tests that have previously been proposed in the literature in this context. We address the question of the power of the test via a brief simulation study and also illustrate the method with two applications to real data.

One of the leading reasons behind social inequities is that elite groups have had access to more widespread and higher-quality educational opportunities much earlier, often when their economic returns were much higher. Nevertheless, measures of educational inequalities tend to focus exclusively on current differences within the school-age population. This paper proposes a new measure – the education inequity index (EII) – that captures cumulative differences in access to the economic returns of education across different groups. Concretely, the EII is the share of the cumulative wage premium appropriated by the elite over time in excess to that accrued by other groups. The paper advances a methodology to compute different versions of the EII using national household survey data. We then illustrate its applications by computing the economic, racial and gender EII for Brazil since 1980, separately for primary, secondary and college education. We showcase the new insights that the EII brings relative to other measures when it comes to monitoring inequities and informing policies to address them.

Ziel der Politik muss es sein, den Menschen ein Leben in Würde und Wohlstand zu ermöglichen. Wissenschaft ist unerlässlich, um dieses Ziel zu erreichen. Aber sie kann den für die Politik zuständigen Personen ihre Verantwortung nicht abnehmen, denn Politik muss neben dem wissenschaftlich Optimalen auch andere Aspekte berücksichtigen wie politische Durchsetzbarkeit, Kosten, Referendumsrisiken oder Vereinbarkeit mit internationalen Verträgen. Wissenschaft erweitert unser Wissen mittels transparenter und überprüfbarer Verfahren. Sie ist ein nie endender Prozess der Suche nach Wahrheit. Oft sind Wissenschaftler in zentralen Fragen dabei auch (noch) uneinig. Das alles eröffnet der Politik auch Missbrauchsmöglichkeiten: Bei Uneinigkeit sucht man den Experten, dessen Meinung gerade passt, man lässt Gefälligkeitsgutachten erstellen, oder man beauftragt Experten bewusst mit der Suche nach Argumenten, die die eigenen Vorurteile bestätigen, usw. Das alles ändert aber nichts daran, dass die Politik zur Bewältigung der Komplexität der modernen Welt wissenschaftsbasiertes Fachwissen benötigt. Da der Staat nicht umfassend über solches Fachwissen verfügen kann, muss er das in Wirtschaft, Hochschulen und Zivilgesellschaft reichlich vorhandene Wissen auf geeignete Weise nutzen. Politik nutzt die Wissenschaft tendenziell eher zu wenig, häufig auch wegen eines gewissen Besserwissertums. Es darf von der Wissenschaft aber auch erwartet werden, dass sie Erkenntnisse zu gewinnen sucht, die politische Probleme praktisch lösen helfen. Die Wissenschaft hat eine Bringpflicht, die Politik eine Holpflicht.

We examine whether finance professionals deviate from Bayes’ theorem on the processing of nondiagnostic information when forecasting quarterly earnings. Using field data from sell-side financial analysts and employing a regression discontinuity design, we find that analysts whose forecasts have barely been met become increasingly optimistic relative to when their forecasts have barely been missed. This result is consistent with an update of analysts’ expectations after observing uninformative performance signals. Our results also suggest that this behavior leads to significantly worse forecasting accuracy in the subsequent quarter. We contribute to the literature by providing important field evidence of expectation formation under uninformative signals.

Individual wage growth is higher in more densely populated regions. Using data on detailed labour market biographies from Germany, this paper shows that job mobility contributes to this urban premium in wage growth. In urban regions, wage growth is higher both within jobs and between jobs. The higher between-job wage growth is driven by a combination of higher frequency of job changes and a higher payoff of moving between jobs. This finding is consistent with better coordination in denser labour markets. Further evidence shows that the gain from higher urban wage growth is not lost upon moving across regions, suggesting that a better job match results in higher human capital accumulation.

Wages are higher in urban regions. These urban wage premia may be driven by sorting of more productive workers into urban regions, by a static productivity advantage, and by higher wage growth. This paper documents a size-earnings elasticity of five per cent in Germany. Sorting of more productive workers into larger regions explains 40 per cent of this elasticity. The remainder is driven in equal parts by a static productivity effect and a dynamic learning effect. The urban wage premium is strongly increasing in educational attainment. This is largely driven by different degrees of sorting between education groups. Similarly, there are large urban wage premium differences between occupation groups, which are entirely driven by differences in sorting.

Children’s self-regulation abilities are key predictors of educational success and other life outcomes such as income and health. However, self-regulation is not a school subject, and knowledge about how to generate lasting improvements in self-regulation and academic achievements with easily scalable, low-cost interventions is still limited. Here, we report the results of a randomized controlled field study which integrates a short self-regulation teaching unit based on the concept of mental contrasting with implementation intentions into the school curriculum of first graders. We demonstrate that the treatment increases children’s skills in terms of impulse control and self-regulation while also generating lasting improvements in academic skills like reading and monitoring careless mistakes. Moreover, it has a substantial effect on children’s long-term school career by increasing the likelihood of enrolling in an advanced secondary school track three years later. Thus, self-regulation teaching can be integrated into the regular school curriculum at low cost, is easily scalable and can substantially improve important abilities and children’s educational career path.

I study the role of industries’ position in supply chains in shaping the transmission of final demand shocks. First, I use a shift-share design based on destination-specific final demand shocks and destination exposure shares to show that shocks amplify upstream. Quantitatively, upstream industries respond to final demand shocks up to three times as much as final goods producers. To organize the reduced form results, I develop a tractable production network model with inventories and study how the properties of the network and the cyclicality of inventories interact to determine whether final demand shocks amplify or dissipate upstream. I test the mechanism by directly estimating the model-implied relationship between output growth and demand shocks, mediated by network position and inventories. I find evidence of the role of inventories in explaining heterogeneous output elasticities. Finally, I use the model to quantitatively study how inventories and network properties shape the volatility of the economy.