We study tax competition in municipal corporate income tax using a difference-in-differences approach based on the fact that municipalities with a left-wing mayor set consistently higher tax rates than those with a right-wing mayor. We show that left-run municipalities with a common border with one or more right-run municipalities set lower tax rates than the remaining left-run municipalities. This approach provides an instrumental variable estimation of the municipal tax reaction functions. Our preferred estimate suggests that municipalities react to an average increase of 1 pp of the neighbours’ tax rate with an own tax increase of 0.912 pp.
“Finding a local fiscal multiplier: do local elections matter?”, with Bruno P. Carvalho and Francesco Franco
We propose a novel instrument to compute local fiscal multipliers. We use the fact that mayors increase spending just before local elections, which are held at regular 4-year intervals, to capture exogenous spikes in local spending, in both current and investment expenditures. We use a rich panel of 278 Portuguese mainland municipalities, with fiscal, economic and political data, to quantify the fiscal policy transmission mechanism between 1986 and 2014. We find that a 1% increase in local investment or current spending generates a contemporaneous increase between 1.5% and 1.7% in the number of full-time workers working in the private sector in the municipality. We also find evidence of a modest increase in the average wage, between 0.2% and 0.6%, one year after the election. Finally, we show that multipliers are higher in bigger municipalities and lower for mayors that have been in power for longer.
“What and how did people buy during the Great Lockdown? Evidence from electronic payments”, with Bruno P. Carvalho and João Pereira dos Santos
This paper uses novel and comprehensive data on electronic payments from SIBS, the main provider of point of sale terminals and on-line payments in Portugal, to study the impact of the Great Lockdown on purchases. The data aggregates all individual transactions into monthly observations, by municipality and sector, between 2018 and 2020. We employ a difference-in-differences event study that relies on the assumption that the monthly evolution of purchases in the first four months of 2020 would be parallel to that of the two previous years. We identify a massive causal impact on overall purchases, from a baseline year-on-year monthly growth rate of 10\% to a decrease of 45%. The sign and magnitude of the impact varies considerably across sectors. Purchases of essential goods such as supermarkets and groceries increase mildly, contrasting with severe contractions in sectors that were closed by government order or depend heavily on tourism, including the leisure industry and restaurants. We find suggestive evidence of initial stockpiling of goods, postponing of essential expenditures, and rapid recovery of purchases in tech and entertainment, possibly to adapt to the confinement. Transactions with foreign-owned cards cause an even greater negative contraction. We disentangle the total effect into the intensive margin of the average transaction and the extensive margin of the number of transactions. Buyers adjust their shopping strategies in rational ways to minimize public health risks: they go less often to supermarkets and buy more each time, and visit local groceries more.
We examine the impact of information provision about central government on voters’ perception of government performance and voting behaviour. We randomly exposed voters to positive, neutral or negative information before the 2017 Portuguese local elections. Treated voters update their perceptions, more so when exposed to negative news. This negativity bias is stronger for first-time voters. We find no evidence of an average treatment effect on voting behaviour, but negative information significantly affects initially undecided voters. Our results indicate that sensitivity to information is heterogeneous and that some groups may be more prone to manipulation through the provision of negative news.
Work in progress
“No Taxation Without Decentralisation? Tax Autonomy and Vertical Yardstick Competition” with Willem Sas
“Do property taxes affect fertility? Quasi-experimental evidence from Portugal”, with Margarida Araújo, Rita Marques and João Pereira dos Santos
“Should We Ban AirBnB? Short-Term Rental Regulation and Housing Prices”, with Duarte Gonçalves and João Pereira dos Santos
“An Empirical Evaluation of The Effectiveness of Fiscal Incentives for Corporate Investment in Portugal” with Ana Fontoura Gouveia, Miguel Ferreira and Risa Pavia
“Markets for Tradable Emission Permits with Fiscal Competition” with Thierry Brechet
“Political Job Complexity and Candidate Selection: When the Going Gets Tough, the Tough Get Going” with Tanguy van Ypersele