This paper investigates the role of credit market sentiments and investor beliefs on credit cycle dynamics and their propagation to business cycle fluctuations. Using US data from 1968 to 2019, we show that credit market sentiments are indeed able to detect asymmetries in a small-scale macroeconomic model. By exploiting recent developments in behavioral finance on expectation formation in financial markets, we are able to identify an unexpected credit market news shock exhibiting different impacts in an optimistic and pessimistic credit market environment. While an unexpected movement in the optimistic regime leads to a rather low to muted impact on output and credit, we find a significant and persistent negative impact on those variables in the pessimistic regime. Therefore, this article departs from the current literature on the role of financial frictions for explaining business cycle behavior in macroeconomics and argues in line with recent theoretical contributions on the relevance of expectation formation and beliefs as source of cyclicity and instability in financial markets. / Series: Department of Economics Working Paper Series

We investigate whether and to what extent the adoption of an intellectual property box increases innovative activity and the extent to which different types of firms benefit financially. We examine the adoption of the intellectual property box in Belgium because it allows us to cleanly identify the impact on innovative activity and effective tax rates. Our results indicate an overall increase in innovative activity as proxied by patent applications, grants, and highly-skilled employment, at the expense of patent quality. We also provide evidence that firms with patents on average enjoy 7.2% to 7.9% lower effective tax rates, with the greatest financial benefits accruing to multinational firms compared to domestic firms. Within multinational firms, those without income shifting opportunities appear to benefit more than other multinationals with income shifting opportunities. / Series: WU International Taxation Research Paper Series

Using a global sample of multinational corporations (MNCs) and their foreign subsidiaries, we find that repatriation taxes impair subsidiary-level investment efficiency. Consistent with internal agency conflicts between the central management of the MNC and the manager of the foreign subsidiary being the driver, we find that this effect is prevalent in subsidiaries with high information asymmetry, in subsidiaries that are weakly monitored, and subsidiaries of cash-rich MNCs. Natural experiments in the UK and Japan establish a causal relationship for our findings and suggest that a repeal of repatriation taxes increases subsidiary-level investment efficiency while reducing the level of investment. Our paper provides timely empirical evidence to inform expectations for the effects of a recent change to the U.S. international tax law which eliminated repatriation taxes from most of the future foreign earnings of U.S. MNCs. / Series: WU International Taxation Research Paper Series

Herman Daly's view of the economy as an "inverted pyramid" sitting on top of essential raw material inputs is compelling, but not readily visible in monetary data, as the contribution of primary sectors to value added is typically low. This article argues that "forward linkages", a classical development theory concept capturing the relevance of a sector for downstream activities, is a more appropriate measure to identify key sectors. Using Input-Output (IO) data from eighteen European countries, we identify mining as the sector with the highest average forward linkages, and confirm the consistency of this result across countries via cluster analysis. By treating IO tables as the adjacency matrix of a directed network, we then build and visualise national inverted pyramid networks, and analyse their structure. Our approach highlights the key importance of natural resources in providing the necessary inputs to modern European economies. / Series: Ecological Economic Papers

We present a method aimed at estimating global bilateral migration flows and assessing their determinants. We employ that fact that available net migration figures for a country are (nonlinear) aggregates of migration flows from and to all other countries of the world in order to construct a statistical model that links the determinants of (unobserved) migration ows to total net migration. Using simple specifications based on the gravity model for international migration, we find that migration flows can be explained by standard gravity model variables such as GDP differences, distance or bilateral population. The usefulness of such models is exemplified by combining estimated specifications with population and GDP projections in order to assess quantitatively the expected changes in migration flows to Europe in the coming decades. / Series: WWWforEurope

We construct a new dataset of inequality in educational attainment by age and sex at the global level. The comparison of education inequality measures across age groups allows us to assess the effect of inter-generational education attainment trends on economic growth. Our results indicate that countries which are able to reduce the inequality of educational attainment of young cohorts over time tend to have higher growth rates of income per capita. This effect is additional to that implied by the accumulation of human capital and implies that policies aiming at providing broad-based access to schooling have returns in terms of economic growth that go beyond those achieved by increasing average educational attainment. / Series: WWWforEurope

We employ 2011 European Union Survey on Income and Living Conditions (EU-SILC) data for Austria to perform Markovian mobility matrix analysis and uni- and multivariate econometric analysis to study intergenerational educational mobility by gender and migration background. We find that the educational attainment of girls and migrants relative to their parents is less mobile than for boys and natives. Further, the immobility of educational attainment is enhanced by the intersection of these identities: migrant girls are the least educationally mobile group and are especially likely to follow their mothers 19 educational footsteps, while native boys are the most mobile, especially compared to their mothers. / Series: WWWforEurope

Series: INEQ Working Paper Series

We study how attitudes to inheritance taxation are influenced by information about the role of inherited wealth in society. Using a randomized experiment in a register-linked Swedish survey, we find that informing individuals about the large aggregate importance of inherited wealth and its link to inequality of opportunity significantly increases the support for inheritance taxation. The effect is almost uniform across socio-economic groups and survives a battery of robustness tests. Changes in the perceived economic importance of inherited wealth and altered views on whether luck matters most for economic success appear to be the main driving factors behind the treatment effect. Our findings suggest that the low salience of inherited wealth could be one explanation behind the relatively marginalized role of inheritance taxation in developed economies. / Series: INEQ Working Paper Series

We test the performance of myopic and farsighted stability concepts in a network formation experiment with a stream of payoffs and relatively unstructured link formation process. A subtle treatment variation demonstrates clearly the power of myopic stability concepts in precisely identifying the set of the most stable networks. However, we also find support for the predictions of farsighted concepts of stability, especially those that assume players' pessimism about the eventual outcome of a deviation. This is the first study to demonstrate that there exist environments where farsighted stability concepts identify empirically stable networks that are not identified by myopic concepts. Thus, myopic stability concepts are not necessarily sufficient to predict all stable outcomes in empirical applications.