Tax Reform Narratives in German Municipal Tax Decisions

• Applicant: Professor Dr. Zareh Asatryan
• Subject Area: Economic Policy, Applied Economics
• Term: since 2024
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 540712849

This project studies the economic effects and political drivers of tax reforms using novel textual data on politicians’ narratives behind local tax reform debates. The narrative data is collected systematically from meeting minutes of German local councils and, unlike standard datasets, it captures both implemented reforms and failed reform proposals as well as the motives behind the reform proposals. This helps advance the literature on the effects and drivers of tax reforms in three ways. First, the data make it possible to identify the causal effects of tax reforms on local economies by comparing municipalities enacting reforms with close-vote counterfactuals where similar reforms failed and doing so for different spending-response scenarios. Second, the narratives allow the construction of peer-to-peer networks of tax competition as perceived by local councilors, offering a new approach to study tax competition beyond generic spatial interaction matrices. Third, using data on reform motives by political party, the project examines how efficiency and equity considerations shape reforms, and how political competition mediates these trade-offs. Overall, the project advances research in local public economics by improving causal estimates of tax effects, incorporating heterogeneous strategic interactions across jurisdictions, and endogenizing tax-setting within the democratic process.

• DFG Programme: Research Grants