I'm research director in the Labour 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
A case for zero effect of sin taxes on consumption? Evidence from sweets tax reforms
with Sami Jysmä (LIER) and Riikka Savolainen (King's College London)
Excise taxes on unhealthy products have become increasingly popular measures. We study one such attempt in Finland: a sweets tax introduced in 2011, consequent reforms increasing the tax and abolishment of the tax in 2017. We study the pass-through to prices and the quantity elasticity of this excise tax that applied to sweets, chocolates, ice creams and soda. We are able to provide credibly causal estimates on the pass-through to prices and on the quantity elasticity because the tax reforms affected significantly the prices of sweets and soda and we can find credible control groups not affected by the reforms but resembling the sweets. We have access to a unique product- and week-level data on sales from a large Finnish retailer chain containing the key information on the products and hundreds of millions of observations. Our findings show that in general the tax was fully passed through to prices. Interestingly, we find that the general sweets tax reform-induced price increases did not reduce the demand for sweets or soda. But we find that a tax reform in 2014 that increased the tax rates for sugared soda while not affecting sugar-free soda did decrease the consumption of sugary soda and increased the consumption of sugar-free soda, suggestively through a substitution effect.
with Tuomas Matikka (VATT)
We provide new evidence of discrete earnings responses to tax incentives, and study the broader implications of discrete rather than continuous earnings adjustment. We utilize an income notch created by the study subsidy system for university students in Finland and a reform that shifted out the location of the notch to uncover the mechanisms behind earnings adjustments. We find clear reduced-form evidence of discrete earnings responses, revealing that wage earners even in the part-time labor market can face significant restrictions in their available earnings choices. Our simulation results highlight that the continuous-choice framework can provide downward-biased earnings elasticity estimates when the actual earnings adjustment process is discrete. At the same time discrete earnings can reduce the actual responsiveness to taxes. More fundamentally, the sufficient statistics for welfare analysis is mobility elasticity under discrete earnings, and estimations based on the continuous model can thus provide misleading sufficient statistics figure.
with Youssef Benzarti (UCSB), Dorian Carloni (CBO) and Jarkko Harju (VATT) Revise and Resubmit requested at the Journal of Political Economy
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.
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 effects of foreign takeovers on firm performance, skill premium and compensation practices following Finland's deregulation of foreign ownership in the mid-1990s. Firms taken over by foreign investors increase their sales, number of employees and wages in comparison to comparable firms that remain domestically owned. We find larger effects on wages at the industry and local labor-market level with an alternative identification strategy using foreign ownership patterns in Sweden to instrument acquisitions in Finland.
The Effect of Home Care Allowance on Child Outcomes
with Jon Gruber (MIT), Kristiina Huttunen (VATT)
We study the effects of child home care allowance that significantly increases parents' incentives to stay home with children under the age of three in Finland. Using a difference-in-differences approach that exploits variation in the municipality-specific supplement to the allowance, we investigate the effects of the allowance on children's outcomes from early childhood until adulthood. Our results show that home care allowance negatively affects the early childhood cognitive test results and decreases maternal employment. These short term child outcome results are mainly arising in municipalities with high average municipal child care quality. Our results on longer term outcomes are more mixed.
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.