I'm Research Professor at VATT Institute for Economic Research in Helsinki, Finland. I have a PhD in economics from University of Helsinki. My research focuses on public economics and labor economics. My recent publications are on behavioral effects of consumption and income taxes.
MY LATEST RESEARCH
Taxing the Sweet Tooth - Evidence on the Role of Substitution in Excess Burden
with Sami Jysmä (LIER) and Riikka Savolainen (Swansea)
Excise taxes are effective means to meet policy goals when they succeed in reducing consumption of the targeted goods, while VAT and sales taxes are efficient taxes when they create as few behavioral responses as possible. To provide novel answers to the question of when these conditions are met, we propose a conceptual Gorman-Lancaster theoretical framework focusing on how different product characteristics relate to substitution patterns between consumption of goods and the demand elasticities. Empirically, we study a Finnish sweets and soda tax scheme providing us with quasi-experimental variation in excise taxes on sweets, soda and ice cream. Importantly, the reforms create variation in how close substitutes the non-taxed goods are to the taxed ones, allowing us to link the empirical results with our theoretical framework. We have unique product- and week-level data on sales and prices containing hundreds of millions of observations. We also have survey evidence on substitution preferences across goods. The quasi-experimental results indicate that even when taxed and non-taxed goods are relatively close subsitutes, the demand elasticity is zero. Only with very close subsitutes, such as sugary and non-sugary soda, we estimate a high demand elasticity. These results mach our analytical result when matched with the substitution index from the survey.
with Tuomas Matikka (VATT)
We provide evidence of discrete labor supply and study the broader implications of discrete responses for estimating earnings elasticities. We utilize an income notch and a reform that shifted the location of the notch to study labor supply mechanisms. We find transparent reduced-form evidence that this reform caused large earnings responses from a broad income range in the distribution, which is consistent with discrete labor supply. We then illustrate that conventional welfare-loss estimates can be downward-biased when labor supply is discrete instead of continuous.
with Youssef Benzarti (UCSB), Dorian Carloni (CBO) and Jarkko Harju (VATT) Journal of Political Economy, Vol. 128, No. 12, 2020.
This paper shows that prices respond more to increases than to decreases in Value-Added Taxes (VAT). First, we combine monthly commodity price data with information on VAT reforms across European countries from 1996 to 2015 to show that prices respond 3 to 4 times more to VAT increases than decreases. Second, we show that the asymmetry persists over several years. Third, we document several empirical features of this asymmetry that are inconsistent with the standard incidence model, such as distributional asymmetry. We provide evidence consistent with firm behavior driving the asymmetry.
Paying Moms to Stay Home: Short and Long Run Effects on Parents and Children
with Jon Gruber (MIT), Kristiina Huttunen (Aalto University)
Child penalty in Finland and the estimated effect of abolishing home care subsidies on that in red
We study the impacts of policy induced home care or day care decisions by parents on parents' and children’s short- and long-term outcomes. We are able to utilize regional and over time exogenous variation in child home care allowance that significantly increases incentives to stay at home and take care of children that are under the age of three in Finland. Our results show that home care allowance decreases maternal employment in short and long term. The effects are large enough for the existence of home care benefit system to explain a substantial part of short-term child penalty. Home care benefits also negatively affect the early childhood cognitive test results of children at the age of five, increase the likelihood of choosing vocational rather than academic secondary education track, decrease likelihood of enrolling to college and increase youth crimes. The results are more pronounced in municipalities that have higher average child care quality. We additionally utilize a day care fee (DCF) reform that created exogenous variation in DCFs. Reducing DCF increased labor force participation of mothers and participation of children to day care, and improved child early test and schooling outcomes. The results indicate that universal child policies can have substantial impact on the subsequent lives of children.
The Impact of Foreign Acquisitions on Wages and Compensation
with David Autor (MIT), Matti Sarvimäki (Aalto) and Tuomo Virkola (EUI and LIER)
Wages and exposure to foreign ownership in local labor markets
We study the impacts of policy induced home care or day care decisions by parents on children’s short- and long-term outcomes. We are able to utilize regional and over time exogenous variation in child home care allowance that significantly increases incentives to stay at home and take care of children that are under the age of three in Finland. Our results show that home care allowance decreases maternal employment and negatively affects the early childhood cognitive test results at the age of five. On longer term we find that home care allowance increases likelihood of choosing vocational rather than academic secondary education track and increases youth crimes. However, we do not find any impact on the grades of children after primary school. The results are more pronounced in municipalities that have higher average child care quality. Supporting the home care versus day care mechanism we additionally utilize a day care fee reform that created exogenous variation in day care fees and affected child outcomes ways consistent with the mechanisms explained above. The results indicate that universal child policies can have substantial impact on the subsequent lives of children.
Missing Miles: Avoidance and Evasion Responses to Car Taxes
with Jarkko Harju (VATT) and Joel Slemrod (UMich) Journal of Public Economics, vol. 181, 2020.
We study tax avoidance and evasion responses to extensive import car taxes in Finland. We do this by exploiting a series of policy reforms in Finland, by utilizing novel third-party comparison information, and by analyzing a randomized control trial that varies the salience of the third-party information and a public disclosure program that renders less attractive car tax evasion achieved by overstating the mileage of imported used cars. The results suggest that car taxes in Finland induce car buyers to avoid some of the taxes by importing used cars from other countries without a high car import car tax. Moreover, we find systematic evidence of tax evasion in the form of “missing miles.” The tax evasion leads to a significant loss of tax revenue and is positively related to CO2 emissions and the tax rate. Increasing the salience of the anti-evasion initiatives reduced reported the overstatement of mileage.
with Jarkko Harju (VATT) and Oskar Nordström Skans (Uppsala)
Journal of Public Economics, vol. 165, pages 48–72, 2018
We analyze price responses to large restaurant VAT rate reductions in two different European countries and show that price responses in the short and medium run were clustered around two focal points of zero pass-through and full pass-through. Differences between independent restaurants and chains is the key explanation for this pattern. While nearly all independent restaurants effectively ignored the tax reductions and left consumer prices unchanged, a substantial fraction of restaurants belonging to chains chose a rapid and complete pass-through. In the longer run, prices converged, but primarily through a price reversion among chain restaurants. The stark difference in price responses cannot be explained by location, initial prices or other market-segment indicators such as meal or restaurant types. Further evidence on the use of round-number pricing, on price-change frequencies, and on pricing behavior during currency conversions suggests that the diverging price responses to consumption-tax reforms reflect fundamental differences in price-setting behavior between the two types of firms.