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.
Discrete Labor Supply: Empirical Evidence and Implications
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.
What Goes Up May Not Come Down: Asymmetric Incidence of Value Added Taxes
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 heterogeneous incidence of fuel carbon taxes: Evidence from station-level data
with Jarkko Harju (Tampere University), Marita Laukkanen (VATT) and Kimmo Palanne (Aalto university and VATT)
We use station-level price data and a significant diesel fuel carbon tax reform to study who bears the economic burden of fuel carbon taxes. We use a difference-in-differences strategy to estimate the pass-through of the large carbon tax increase to retail prices, where we compare retail diesel prices faced by private motorists to retail gasoline prices. We find that on average fuel carbon taxes are less than fully passed through to consumer prices, which suggests that consumers and the supply chain split the burden of these taxes. Using information on station location, we match price observations with postcode-level average incomes and measures of urbanization, and show that there are significant differences in the pass-through rate across areal incomes and between rural and urban areas up to one year after the reform. The effect of fuel carbon taxes on consumer prices decreases with areal income and with the degree of urbanization.
The Impact of Foreign Acquisitions on Wages and Compensation
with David Autor (MIT), Matti Sarvimäki (Aalto) and Tuomo Virkola (VATT)
Wages and exposure to foreign ownership in local labor markets
What are the effect of foreign ownership in the labor markets? This paper studies this question utilizing microdata from Finland and a reform in 1993 that made foreign ownership of firms unrestricted in Finland.
Missing Miles: Avoidance and Evasion Responses to Car Taxes
with Jarkko Harju (VATT) and Joel Slemrod (UMich) Journal of Public Economics, vol. 181, 2020.
Firm types, price-setting strategies, and consumption-tax incidence
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.