Public finance in the era of the COVID‑19 crisis

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A journal article, Public finance in the era of the COVID-19 crisis, by David R. Agrawal and Aline Bütikofer, published in International Tax and Public Finance (2022) 29:1349–1372, accepted 3 October 2022 and published online 5 November 2022. The authors reflect on how the pandemic has shaped public economics and identify areas needing more research. They discuss labor markets, schooling and inequality, including an OECD unemployment rate of 8.8% in April 2020, and how e-commerce and telework create new challenges for taxing consumption and income. The article also weighs the costs and benefits of decentralized policymaking in a global crisis and summarizes the 2021 International Institute of Public Finance Congress and the papers in the special issue. It ends with a reference list.

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International Tax and Public Finance (2022) 29:1349–1372
https://doi.org/10.1007/s10797-022-09769-3




Public finance in the era of the COVID‑19 crisis

David R. Agrawal1           · Aline Bütikofer2

Accepted: 3 October 2022 / Published online: 5 November 2022
© The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature
2022



Abstract
The COVID-19 crisis poses new policy challenges and has spurred new research
agendas in public economics. In this article, we selectively reflect on how the field of
public economics has been shaped by the COVID-19 pandemic and discuss several
areas where more research is necessary. We highlight major changes and inequalities
in the labor market and K-12 education, in addition to discussing how technological
change creates new challenges for the taxation of income and consumption. We dis-
cuss various policy responses to these challenges and the role of fiscal federalism in
the context of worldwide crises. Finally, we summarize the key issues discussed at
the 2021 International Institute of Public Finance Congress and the papers published
in this special issue.

Keywords Public economics · Labor economics · Education · Tax · Expenditure ·
COVID-19 · Inequality · Fiscal federalism

JEL classification H0 · J0


1 Introduction

The COVID-19 crisis will influence health, labor, education, social insurance and
tax policies for many years to come. The long-term consequences of the pandemic
on female participation in labor markets and the implications for school-aged chil-
dren remain uncertain. These distributional consequences of the pandemic are


* David R. Agrawal
  dragrawal@uky.edu
    Aline Bütikofer
    aline.buetikofer@nhh.no
1
    Martin School of Public Policy and Administration and Department of Economics, University
    of Kentucky, 433 Patterson Office Tower, Lexington, KY 40506‑0027, USA
2
    Department of Economics, Norwegian School of Economics, Helleveien 30, 5045 Bergen,
    Norway


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1350                                                                           D. R. Agrawal, A. Bütikofer


important to understanding the dynamics of inequality over the long-term, along
with the appropriate policy responses. In the short-run, the pandemic has also cre-
ated the need for additional sources of tax revenue to fund recovery efforts, includ-
ing discussions of the taxation of wealth. At the same time, rapid digitization of
consumer purchases and the rise of telework have created new challenges for tax
systems that will persist into the future. Within federations, the degree of decentrali-
zation of various health, education, labor, social insurance, and tax policy responses
remains a contentious area of debate in the face of global problems.
    We survey several of the ways the COVID-19 crisis has changed the field of
public economics and policymaking, highlighting fruitful areas of research.1 We
first discuss issues related to labor markets, schooling and inequality, including the
potential long-term implications of the pandemic. We then discuss how technologi-
cal changes will influence the ability of governments to collect tax revenues, includ-
ing possibly different effects on small and large jurisdictions.
    First, the effect of the pandemic on labor markets and schooling has been pro-
found. Although governments around the world enacted short-term policies to com-
bat the virus and the resulting economic downturn, social distancing measures and
other pandemic-related shocks/policies affected individuals and families differently.
These differential effects may have profound consequences in the labor market for
current workers on the basis of gender, income, or industry. In addition to possi-
ble earning losses, there are also implications for future health status. The conse-
quences of the COVID-19 pandemic also interact with pre-existing inequalities and
have distributional impacts along various dimensions. One dimension is the gender
wage gap, which has also been influenced by women facing increased costs of car-
ing for young children. Overall, the COVID-19 pandemic has had unprecedented
short-term effects on the nature of work, labor market institutions, and family well-
being, with uncertain long-term consequences. While some workers benefit from
the rapid technological changes made during the pandemic, the COVID-19 crisis
also reinforces existing inequalities by gender and skill levels. Each of these issues
poses new challenges for government policies and demands further research by pub-
lic finance scholars.
    The effects of the pandemic likely extend beyond the current labor market and
could be amplified in future years for current school-age children. At the onset of
the pandemic governments suspended in-person learning and, in some countries,
(partly) replaced it with virtual classrooms, while others entirely closed schools. The
global disruption in education has potentially harmful long-term consequences for
millions of young people. The consequences of this learning loss may widen ine-
quality both across and within cohorts, as virtual learning relies on access to tech-
nology that not all schools and families can afford and requires in-home supervision
that not all families can afford to provide. The heterogeneity in school policies across
the globe, combined with different initial conditions and education costs, may also
amplify cross-country inequities in education. In addition, the school lockdowns


1
  The topics we have selected are not exhaustive, and inevitably, our own personal interests have influ-
enced the topics we have selected to emphasize.


13
Public finance in the era of the COVID‑19 crisis	                                1351


may have mental health implications for children unable to visit with friends. In
response to the expected learning losses from school closures, many high-income
families exited the public schools in favor of homeschooling or private education,
which creates long-term policy issues related to the composition of the student body
in public schools. Overall, these results suggest that the pandemic has taken a large
toll on children from poorer backgrounds and that educators in high-poverty districts
face additional challenges. Thus, more research is needed to shed light on what addi-
tional resources are necessary to support the transition back to in-person learning,
with a particular focus on the most vulnerable students in order to mitigate the ineq-
uities already created by the pandemic.
   Second, we discuss how technology—or more accurately, changes to how com-
monplace the technologies of e-commerce and telework are—creates new challenges
for governments seeking to raise tax revenue. These technologies make consump-
tion and labor income more globalized, with individuals buying from and earning
income in nonresident jurisdictions.
   With respect to e-commerce, the pandemic made e-commerce more common-
place. Because many online transactions cross state or international borders, e-com-
merce poses challenges over how to enforce taxes in the destination jurisdiction.
Although there is general agreement to follow the destination-principle, enforcing it
requires that taxes be remitted by firms. But, in the case of small online vendors—
such as those found on a marketplace platform—enforcing consumption taxes is
challenging. One possible solution is to shift the remittance responsibility from the
small vendor to the platform or marketplace, but such policies are still only begin-
ning to be implemented. For the USA, where the taxation of goods is decentralized
to state and local governments, e-commerce has implications who receives the tax
revenue. As a result, with the appropriate policies in place, e-commerce can “redis-
tribute” tax revenues from larger jurisdictions to smaller jurisdictions. This also
raises interesting equity issues for commodity taxes. Because smaller jurisdictions
often set lower tax rates than larger jurisdictions, e-commerce lowers the effective
tax rate that consumers located in more rural jurisdictions pay. But if more rural
areas do not have affordable access to affordable broadband services, then access to
goods online may be problematic, raising new equity issues.
   Just as e-commerce creates fiscal challenges for governments, so too does remote
work and work-from-home (WFH) arrangements. Telework fundamentally changes
the standard joint choice of where to live and work by decoupling the state of
employment and the state of residence. Severing the link between employment and
residence may make taxpayers more footloose. Telework disproportionately ben-
efits high-income workers, which raises equity issues. High-income taxpayers can
now more easily chose to live and work in different jurisdictions, possibly taking
advantage of different productive amenities in the employment state and different
consumption amenities in the residence state. But, there is currently little consen-
sus among governments over who has taxing rights over teleworkers—the resident
state, the employment state or both states—and the mobility responses to taxation
depend on which jurisdiction taxes personal income. Telework also raises impor-
tant enforcement issues by making standard tools such as information reporting less
effective if firms cannot be compelled to provide information about, or withhold

                                                                           13
1352 D. R. Agrawal, A. Butikofer

taxes for, workers living in another state. Each of these issues may threaten the abil-
ity of governments to engage in progressive redistribution as taxpayers increasingly
earn income from nonresident states.

Finally, we discuss the benefits and costs of decentralized policymaking in the
context of global crises such as the pandemic. Although the COVID-19 crisis is a
worldwide problem, policy responses to it are necessarily decentralized to differ-
ent countries. In turn, federal systems may delegate some policies to state or even
local governments. On the one hand, decentralized policymaking will not internal-
ize externalities and will not account for spillovers across jurisdiction boundaries.
But, on the other hand, decentralization can allow governments to exploit local
information and better match policies to the preferences of citizen. The COVID-19
pandemic highlighted the tradeoffs between the disadvantages and the advantages
of decentralization along a wide range of policies including social insurance, mask
mandates, school closures, and health policies, among others. Certainly, COVID-19
is not the last global problem, with environmental threats such as global warming
also being met with uncoordinated policies by nations and states. Understanding and
quantifying the tradeoffs of decentralization under COVID-19 can help inform gov-
ernments how to optimize the level of government implementing policy in response
to other global challenges.

We conclude by summarizing our reflections, as scientific co-chairs, on the 2021
Congress of the International Institute of Public Finance (IPF). We then discuss the
papers in this special issue of the Congress.

2 How COVID-19 has changed public economics
2.1 Labor markets, schooling, and inequality

In an effort to limit the spread of COVID-19, governments introduced severe social
distancing measures at the start of the pandemic. These regulations led to the closure
of many businesses and entire sectors of the economy with immediate and dramatic
consequences for individuals’ ability to earn a living and to consume goods and ser-
vices. Governments also designed and introduced new labor policies to protect the
jobs and livelihoods of those most affected by the social distancing measures. In
addition to closing businesses, social distancing measures closed schools and learn-
ing institutions for the majority of the school children and students around the globe.
These closures had profound consequences for millions of young people, their fami-
lies, and, in the long-run, the society in general. In addition, social distancing meas-
ures hit individuals and families differently and might have profound consequences
for inequality in the labor market, household, and education.

2.1.1 Labor market, home production, and inequality
The effect of the pandemic on labor markets around the globe has been profound.

In the OECD, the unemployment rate saw an unprecedented 3 percentage point
increase within 1 month to reach 8.8% in April 2020. Hence, just 1 month into the

va Springer
Public finance in the era of the COVID‑19 crisis	                                 1353


lockdowns implemented in most Western countries, the entire increase in employ-
ment since the financial crisis was erased (OECD, 2021). The large number of tem-
porary layoffs in the USA—where the number of people in unemployment increased
by nearly 16 million in the first lockdown month—contributed substantially to the
sharp increases in unemployment.
   The effects of the COVID-19 pandemic on employment and earnings are likely to
be long-lasting. Job loss during an economic downturn has far larger consequences
than job loss in a boom (see, e.g., Davis & Wachter, 2011; Schmieder et al., 2022;
Eliason & Storrie, 2006) and prolonged job loss has been shown to have a nega-
tive effect on health and mortality (Sullivan & von Wachter, 2009). Based on pre-
vious recessions, von Wachter (2020a) estimates that lifetime earnings losses from
pandemic-related job loss. For a subset of vulnerable USA workers who lost a job,
he finds that the declines in lifetime earnings could be up to $2 trillion and that
the overall employment-population ratio could decline permanently. Moreover, job
loss has important effects on health status. Critically, von Wachter (2020a) suggests
that the losses in potential life years for these vulnerable individuals who lost a job
are substantially larger than losses in potential life years from deaths directly due
to COVID-19 in the USA. Moreover, young people finishing their education and
entering the labor market during the pandemic are at risk to suffer from persistent
changes to their earnings and mortality (von Wachter, 2020b), which can have sub-
stantial consequences for future income tax revenue and public pensions.
   Early in the pandemic, many European countries implemented policies such as
furloughing schemes to protect matches between employers and employees dur-
ing the pandemic (see, e.g., Nekoei & Weber, 2015, 2020; Adams-Prassl et al.,
2020). Hence, an unusual feature of the COVID-19 crisis is that government policy
resulted in an increase in temporary unemployment and workers not working, but
while maintaining their employment contract. While aggregate job search tends to
increase during a downturn, job search activity during the pandemic appears to have
declined (Forsythe et al., 2020; Hensvik et al., 2021). There are various reasons for
this decline ranging from the fear of infection from COVID-19, limited employment
services, school and childcare closures limiting the ability of parents to participate
in the labor market, or more generous labor policy benefits. While Hensvik et al.
(2021) and Marinescu et al. (2021) show that the limited job search, in the short-
run, was not driven by changes in benefit generosity in Sweden or the USA, a more
open question is whether increased benefit generosity could affect job search in the
longer-run. Another reason for the declining job search activity during the COVID-
19 downturn is the high numbers of unemployed individuals who expect to return to
their previous positions. Hence, this large pool of unemployed individuals, who are
not actively looking for new jobs, may distort traditional measures of labor market
tightness (based upon unemployment numbers) and hamper vacancy creation (For-
sythe et al., 2020). Despite the fact that the recall rates among those on temporary
layoffs have been relatively high in previous downturns (Katz & Meyer, 1990), the
benefits of labor hoarding are most pronounced during temporary shocks because
only the expected costs of hoarding are time dependent and not the savings from
avoiding firing and rehiring workers (Giupponi & Landais, 2018). As expectations
of the length of the pandemic increase, an increasing number of businesses will

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1354                                                             D. R. Agrawal, A. Bütikofer


likely no longer rely on furloughing schemes but instead lay off workers on a per-
manent basis. Moreover, while different policies protected firms from the immediate
impact of the public health crisis, more firms will struggle in the long-run and some
of the workers who expect to return to their previous positions will be laid off per-
manently (Demmou et al., 2021). Overall, implementing generous policies such as
furloughing schemes demand careful consideration and likely the support of further
policy instruments to make the labor market matching process after the pandemic
more efficient.
    The consequences of the COVID-19 pandemic also interact with pre-existing ine-
qualities and have distributional impacts along various dimensions. The increased
usage of video conferencing, home office, and intelligent assistants during the pan-
demic has led to technological changes that will likely persist. Technological change
will reinforce inequalities between workers employed in occupations at high-risk of
automation that are generally low-skilled and workers doing non-routine and crea-
tive tasks that are more difficult to automate and at the same time easier to tran-
sition to telework. In addition, social distancing measures have hampered workers
in sectors with frequent human interactions, such as retail, hotels, restaurants, and
travel. Hence, the distribution of jobs and workers affected from the COVID-19
downturn varies from previous recessions where often the construction and manu-
facturing sectors are hit hardest. While women are over-represented in the service
sector industries that have been most affected by social distancing measures, they
are also over-represented in sectors that have been defined as critical to the COVID-
19 response such as the health care sector. At the same time, women are more likely
to have occupations that can be performed from home (see, e.g., Alon et al., 2020;
Hupkau & Petrongolo, 2020). Hence, it is unclear where or to what extent we should
expect gender differences in the labor market effects from the pandemic. Alon et al.
(2020) conclude that the gender wage gap will widen throughout the recovery in the
USA and Andrew et al. (2021) document that mothers are more likely than fathers to
be out of work or furloughed in the United Kingdom.
    The pandemic has also affected home production, which in turn affects the labor
market, due to school and childcare closures and the sudden inability to outsource
some home production to market-based providers. If the burden of these care
responsibilities is unevenly shared within the family, the COVID-19 crisis might
affect gender inequality in earnings and the division of work in the longer run.
Sevilla and Smith (2020), Farré et al. (2022), and Boca et al. (2020) document that
women took over most of the increased childcare burden in the United Kingdom,
Spain, and Italy, but evidence on their labor market outcomes is mixed.
    Moreover, Boca et al. (2020) find that women with children aged 0–5 years are
struggling most with balancing work and family during the pandemic in Italy. Oref-
fice and Quintana-Domeque (2021) present evidence that decreases in female labor
market outcomes in the United Kingdom during COVID-19 are associated with a
higher incidence of mental health issues and Zamarro and Prados (2021) observe a
widening difference in psychological distress between mothers and women without
school-age children in the USA. Hence, the increased burden on mothers during the
pandemic might also increase mental health treatment costs in the future.


13
Public finance in the era of the COVID‑19 crisis	                                1355


   While women’s increased care burden may rather reinforce existing gender ine-
qualities, the tendency toward flexible work arrangements and remote work may
come as an advantage for women because women’s demand for remote work is
higher than for men and because women, in particular mothers, have a lower will-
ingness to commute (Mas & Pallais, 2017; Le Barbanchon et al., 2020). Neverthe-
less, remote work arrangements may also weaken employee presence and attach-
ment to the workplace, possibly limiting career progression (Hupkau & Petrongolo,
2020). Moreover, the historically high job turnover rates during the pandemic—also
known as the Great Resignations—are partly fueled by childcare issues and the lack
of temporal and geographical flexibility.
   Overall, the COVID-19 pandemic has had unprecedented short-term effects on
the nature of work, labor market institutions, and family well-being with likely per-
sistent long-term consequences. While some workers benefit from the rapid tech-
nological changes made during the pandemic, the COVID-19 crises also reinforced
existing inequalities between gender and skill levels. Each of the issues discussed
above poses new challenges for government policies and demands further research,
both with respect to short-term labor market effects, but also with respect to longer-
term inequalities in the labor market.

2.1.2 Learning loss, child mental health, and inequality

With the goal of slowing the spread of COVID-19 and preventing the overcrowding
of health services, governments around the globe suspended in-person classroom
learning in schools in 2020. By affecting approximately 95% of the world’s student
population, this change in education and learning mode constitutes the largest dis-
ruption to education in history (UN, 2020). The global disruption in education has
potentially harmful long-term consequences for millions of young people. If virtual
learning options are a poor substitute to in-person learning, the pandemic might
have particularly long-lasting consequences on the children’s socialization and even-
tual labor market outcomes. Moreover, suspended classroom learning threatens to
widen inequality both across and within cohorts, as virtual learning relies on access
to technology such as fast internet and laptops that not all schools and families can
afford. Home-based virtual learning might also depend on the parents’ ability to
support their children (or to hire support for their children). And the difficulty to
meet friends and teachers might affect children’s mental health and expectations.
   The transition period to online-based solutions for instruction as well as the new
schooling mode led to substantial learning loss. Engzell et al. (2021), for example,
exploit a feature in the Dutch education system where the national exams took place
both before and after the March 2020 lockdown. The authors show that the progress
students made between the two test dates are approximately 0.08 standard deviations,
or about 3 percentile points, lower compared to student progress in the same period
in the 3 years prior to the pandemic.2 These results imply that student progress was
limited while learning from home even though the lockdown in the Netherlands was


2
    Maldonado and De Witte (2022) find similar results in Belgium.


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1356                                                              D. R. Agrawal, A. Bütikofer


relatively short (eight weeks) and despite the fact that the Netherlands has a very
high rate of broadband access. Hence, the learning losses might even be larger in
countries with weaker infrastructure or longer school closures. Educational disrup-
tions also continued during the 2020–21 school year as different countries, districts,
cities, or schools alternated learning modes. While some schools offered in-person
schooling all day, other schools offered virtual learning and some combined these
two learning modes. Halloran et al. (2021) show that children who attended school
virtually or in a hybrid format (a combination of in-person and virtual learning) in
the USA have significantly lower grades than children enrolled in schools with in-
person teaching. The results suggest that suspended classroom learning over longer
periods has had substantial negative consequences for children’s schooling outcomes
that are even larger than the learning loss experienced by New Orleans students after
schools closed following Hurricane Katrina (Sacerdote, 2012).
   While the short-term losses during the initial spring-2020 lockdown were sub-
stantially larger among students from less-educated homes (Engzell et al., 2021;
Maldonado & De Witte, 2022), the longer-term exposure to remote online instruc-
tion has increased inequality in education even further. von Wachter (2021) and
Agostinelli et al. (2022) document that learning losses are particularly severe for
children from disadvantaged backgrounds and that school closures have a large,
persistent, and unequal effect on human capital accumulation both in Germany and
the USA. Moreover, virtual schooling is associated with growing achievement gaps,
especially for Black and Hispanic students attending high-poverty schools in the
USA: Goldhaber et al. (2022) show that the learning loss from remote instruction in
the 2020–2021 school year is equivalent to 13 weeks of in-person instruction, reach-
ing as much as 22 weeks for students in high-poverty schools. The average achieve-
ment losses for children in schools that reopened were between 7 and 10 weeks of
in-person instruction. As learning is a cumulative process, some of these learning
losses will likely persist and affect children’s future economic prospects, reinforcing
racial and income inequalities.
   Not only are test scores affected by school closures, but students also delay grad-
uation and students have substantially lower expectations about their future earn-
ings (Aucejo et al., 2020). Mental health visits for children increased substantially
during the pandemic and public schools experienced an increase in the number of
children seeking school mental health services. School closures are also associated
with worse child mental health outcomes, and this association is stronger for chil-
dren from poorer families (Hawrilenko et al., 2021). In addition, school personnel is
the number one source of child maltreatment reports. Baron et al. (2020) show that
the large decline in maltreatment allegations was largely driven by school closures,
with potentially long-term consequences for child welfare. Nevertheless, some sur-
veys also suggest that a portion of adolescents describe their mental health as having
improved during school closures (Ford et al., 2021), perhaps related to the observed
decrease in school bullying and cyberbullying as schools shifted to remote learning
(Bacher-Hicks et al., 2021).




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   Learning losses due to school closures have led parents to “vote with their feet”
and opt for alternatives such as homeschooling and private schools.3 In the USA,
public school enrollment declined noticeably in fall 2020. Musaddiq et al. (2022)
document that homeschooling increased more in areas where schools provided in-
person learning. On the other hand, in areas with virtual learning, private schooling
increased more where instruction was remote. These changes imply potential longer-
run consequences for the composition of the student body at public schools.
   Overall, these results suggest that the pandemic has taken a larger toll on children
from poorer backgrounds and that educators in high-poverty schools likely have an
even more challenging task to address the effects of the pandemic. Hence, policy-
makers may need to consider what additional resources are needed to support the
transition back to in-person learning and with a particular focus in the most vulner-
able students. These issues also pose challenges for policymakers and researchers
seeking to address additional inequalities created from the pandemic.

2.2 Taxation and revenue policies

The pandemic has also spurred discussions relating to the need for new sources
of tax revenue to fund recovery efforts, including discussion about the taxation of
wealth. At the same time, and potentially measurable via empirical studies, the rapid
digitization of consumer purchases and the rise of telework create new challenges
for tax systems. In particular, increases in online commerce mean consumers now
buy goods from vendors located all around the world and increased telework means
that individuals may earn income from many jurisdictions around the world. In other
words, taxpayers are increasingly “globalized,” implying that traditional administra-
tive tools like information reporting become less effective. In this section, we focus
on how technological change poses challenges for raising revenue due to increas-
ingly globalized taxpayers and consumption patterns.

2.2.1 Online shopping and commodity taxation

Online shopping is not a new phenomenon. Policy commentators have long
argued—and economists estimated—that the tax revenue consequences of e-com-
merce could be substantial (Bruce & Fox, 2000; Bruce et al., 2015). But, the pan-
demic made e-commerce more commonplace by accelerating the growth rate of
online purchases and expanding its reach to new types of products such as food,
which previously were mainly purchased in-store. For example, Chetty et al. (2020)
note that online shopping increased by 37% in the early quarters of the pandemic
in the USA, with the increase largely sustained in the ensuing quarters. In a world
where goods purchased online are simply shipped from a local store, a change in
the modality of how an individual buys goods would pose few challenges for fis-
cal systems. However, many online transactions cross state or international borders,


3
  In some cases, the pandemic has induced households to move across school district boundaries
depending on the policies.


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1358                                                                D. R. Agrawal, A. Bütikofer


potentially resulting in consequences for which jurisdiction receives the tax revenue
and raising issues with respect to the enforcement of taxes.
   In some ways, online shopping raises similar issues as the international issues
relating to corporate taxation. When a buyer in seller are located in different juris-
dictions, possibly using an online platform or marketplace located in a third juris-
diction, which jurisdiction should have taxing rights on the sale? What is the most
effective way to effectively tax an interjurisdictional transaction? Depending on how
these questions are answered, the revenue consequences for some jurisdictions may
be substantial.
   With respect to the first question, there is a broad consensus that taxes on online
purchases should be sourced to the destination state, e.g., the state where the con-
sumer resides. The basic intuition is that consumers are more immobile than firms
and government revenues then fund public services provided to residents. Despite
this consensus, for many years, parts of e-commerce in the USA were effectively
untaxed because states could only require firms with physical nexus to remit taxes
on a destination basis. A recent Supreme Court ruling largely resolved this issue in
many states. Similar challenges for some services existed in the European Union.
But, exceptions to destination taxation of online commerce still remain and only
recently did the European Union switch away from the origin principle for the taxa-
tion of digital services.
   Although such a consensus for destination taxation has emerged, the COVID-19
pandemic has highlighted that enforcing consumption taxes on a destination based
can be challenging in the presence of e-commerce. Internationally, for a physical
good shipped from another country—especially a country outside of the European
Union—enforcement may be difficult, especially in the case of small or informal
sellers. The same is true for small online sellers across state borders within the USA.
In practice, these challenges arise because states adopt thresholds for firms to be
required to remit taxes and, moreover, enforcement of these rules for small sellers
that are external to the jurisdiction is costly. As a result, more focus on tax adminis-
tration and the enforcement of remittance rules for commodity taxes are necessary.
While much of the public finance literature has focused on tax rates and tax bases at
the extent of tax enforcement (Slemrod, 2019), the globalization of goods and ser-
vices poses challenges to administration.
   A related issue concerns who should remit the tax to the government (firms or
individuals) and, in the case of e-commerce from marketplace transactions, whether
the platform should remit on behalf of its sellers. Although standard models in pub-
lic economics suggest that many things are invariant to who remits the tax, recent
theories suggest that due to differential evasion, invariance may no longer hold
(Kopczuk et al., 2016; Hansen et al., 2022). In the USA, for example, when remit-
tance of the tax was assigned to the consumer, enforcement was nonexistent. As
a result, in most countries, remittance rules assign the responsibility to firms, due
to easier enforcement opportunities. However, small firms may still avoid the tax,
especially if they are outside of the jurisdiction’s borders. Even in cases of the value-
added tax, small suppliers from outside the European Union have posed challenges.
One possible solution has been to shift the remittance rule from the small vendor
to the larger platform or marketplace, but the empirical and theoretical evidence on

13
Public finance in the era of the COVID‑19 crisis	                                                     1359


the role of platforms is limited (Köthenbürger, 2020; Fox et al., 2022). The existing
empirical evidence indicates that moving the remitting party higher up in the supply
chain seems to increase enforcement, raising tax revenues.
   Finally, e-commerce–combined with appropriate remittance rules and destination
sourcing—is not only useful at increasing enforcement, but also affecting the dis-
tribution of which jurisdictions receive tax revenue. This was especially the case
in the USA, where states and even local government can levy tax rates on the sale
of goods. In the pre-Internet era, individuals in smaller remote areas would need to
travel to larger jurisdictions with retail agglomerations. Then, because cross-border
sales are effectively taxed in the location of purchase (origin principle), tax revenues
on those sales accrue to the larger jurisdiction. As a result, large jurisdictions raised
a share of revenue that was in excess of their share of population or income. With
e-commerce and appropriate rules, this is not necessarily the case. In particular,
online vendors remit taxes to the consumer’s home jurisdiction (destination prin-
ciple). Individuals no longer need to travel to other localities, and instead buy those
goods from the convenience of their own home, with tax revenues now accruing
to their smaller hometown. As a result, successful enforcement of those remittance
rules implies that e-commerce “redistributes” revenue from larger agglomerated
jurisdictions toward smaller hometown jurisdictions (Agrawal & Wildasin, 2020;
Agrawal & Shybalkina, 2022). This also raises interesting equity issues for com-
modity taxes. As pointed out by Seegert et al. (2022), because smaller jurisdictions
often set lower tax rates than larger jurisdictions, e-commerce lowers the effective
tax rate that consumers located in smaller rural jurisdictions pay.4 If rural areas are
lower income, this shift mitigates some of the regressivity of consumption taxes but
may create inequities if some households do not have affordable access to broadband
technologies.
   One way to encourage firms to comply is to simplify tax administration. Within
the E.U., the mini-one-stop-shop (MOSS) was created to allow firms to file a single
tax return rather than a return in every state their consumers are located. Then, tax
revenues are appropriately allocated to the correct destination location by the mem-
ber state that receives the return. As discussed in Agrawal and Fox (2017), this sub-
stantially reduces compliance costs, while allowing the revenues to be appropriately
allocated.
   Of course, physical goods are not the only way individuals consume online. An
increasingly large share of consumption occurs through digital services. While
in the USA, the taxation of these services is up to debate, the recent consensus in
the European Union is to tax these goods at destination. However, unlike physical
goods, discerning the location of consumption can be tricky. Even if firms remit
taxes, consumers can, for example, alter the information in their Netflix account, in
order to think the firm that consumption is occurring in a low-tax jurisdiction. These
concerns are understood (Hellerstein, 2015), but empirical evidence on the extent of
such evasion is not well documented. As digital services become a larger share of
consumption, new policy issues will arise with respect to their taxation.


4
    See Kanbur and Keen (1993) and Nielsen (2001) for a discussion of the role of jurisdiction size.


                                                                                              13
1360                                                                           D. R. Agrawal, A. Bütikofer


   To summarize, the COVID-19 crisis has accelerated a trend toward digital con-
sumption of both goods and digital services. This increase in e-commerce shifts
standard tax avoidance opportunities away from consumer-driven cross-border shop-
ping toward new avoidance opportunities by firms and consumers. At the same time,
e-commerce, combined with effective remittance rules, has the potential to act as an
enforcement tool, especially for smaller jurisdictions. These trends of e-commerce
will likely continue into the future justifying a need to focus on administrative and
compliance issues related to interjurisdictional sellers of goods and services.

2.2.2 Telework and income taxation

Just as e-commerce poses fiscal challenges for governments, so too does remote
work and work-from-home (WFH) arrangements. Remote work poses a challenge
because states and countries are usually limited to taxing activity within their juris-
diction’s boundaries. But remote work allows workers to essentially work from any-
where, raising questions as to whether the activity occurs where the employer or the
employee is located. Like e-commerce, these remote work arrangements were tech-
nologically possible prior to the pandemic, but COVID-19 made work-from-home
commonplace, with survey evidence indicating that it will persist into the future
(Barrero et al., 2021).
    The most direct impacts of telework pertain to personal income taxes. In par-
ticular, WFH raises important questions of where income should be taxed. Should
personal income be taxed in the state of residence or in the state of the employer?
To what extent do individuals benefit from local public services in the state of the
employer, even without setting foot in the state? Does telework undermine pro-
gressive redistribution by making households more mobile? While there is a large
literature on the effect of work-from-home on labor markets and on the structure
and desirability of urban cities (e.g., Larson & Zhao, 2017; Brueckner et al., 2022;
Brueckner & Sayantani, 2022), the analysis of the effects of telework on fiscal sys-
tems is understudied.
    In the pre-telework era, interstate work arrangements mainly concerned cross-
border workers, often times in metropolitan areas that straddle state or international
borders.5 Given the share of interstate commuters was historically relatively small,
the vast majority of individuals made a joint decision over where to live and work.
As a result, issues related to the income taxation of nonresident workers could read-
ily be resolved in the form of bilateral tax treaties. In the USA, the default taxation
of nonresident workers was such that the employment state first taxes income earned
within its borders. Then, the resident tax state can tax that same income, after offer-
ing a tax credit for taxes already paid. As a result, resident tax states only would tax
cross-border workers if they levy a higher tax rate, implying the effective tax rate
is the maximum of the two state rates. Alternatively, states can sign a bilateral tax
treaty (reciprocity agreement), whereby the employment state gives up taxing rights


5
  Of course, exceptions to this include athletes and musicians, along with other high-income individuals
with consulting contracts from employers in multiple states.


13
Public finance in the era of the COVID‑19 crisis	                                  1361


on the nonresident workers (Coomes & Hoyt, 2008). Then, individuals only file a
return in the resident state, making taxes entirely resident-based. At the international
level, bilateral tax treaties imply that frontier workers that engage in an interstate
commute can be taxed either in the source or residence state.
   Telework fundamentally changes the standard joint choice of where to live and
work by severing the link between the state of employment and the state of resi-
dence. As a result, an individual can choose a vector of amenities and housing prices
that are independent of the productivity and wages in the employment state. Sever-
ing the link between employment and residence may make taxpayers more footloose
because now they can separately relocate their residence and employment. In this
way, despite a large literature studying the residential relocation decisions of taxpay-
ers (Kleven et al., 2020), there is almost no evidence on the employment relocation
decision of taxpayers, holding fixed the residence state. Indeed, much of the litera-
ture assumes these two elasticities are the same.
   Understanding employment responses is especially critical if teleworkers are
taxed according to the source, rather than the residence principle because under
source-based taxation, a worker can only avoid taxes by changing jobs. Of course,
that is not to say that in the presence of telework, a tax increase will only change
the employment location of workers. In particular, taxes also fund valuable pub-
lic services, and as a result, tax increases in a state will change the population of
individuals working there even if taxes are only due to the state of employment.
This dual response is not evident if taxes are purely residence based, as individuals
only respond to taxes (and public services) by adjusting their residential location
(Agrawal & Brueckner, 2022).
   Then, the question is whether a residence-based or employment-based sourcing
rule is most appropriate for the taxation of teleworkers. One consideration is the
relative elasticity of residential choice and the employment choice location. Taxing
the more inelastic factor might be reasonable, but note that, even if taxes are entirely
employment-based, residential relocations will occur due to endogenous public
amenities. Another consideration is that taxes are used to fund public services. In
so much as nonresidents do not consume much public services, then taxes might
reasonably be levied in based on residential location. Wildasin (1980) and Wildasin
(2013) show how the congestion costs of public services influence the efficiency
conditions for decentralized taxation. Finally, the extent of tax competition also
depends on the sourcing rule in place.
   The sourcing rule may also raise important enforcement issues. In particular,
when individuals live and work in different places, standard enforcement tools, such
as information reporting can break down. This is especially the case if one state
or country cannot compel another state or country to provide them with informa-
tion. For example, with residence-based taxation, are firms in other states required
to report and withhold income taxes from individuals living in another state? If not,
then the resident state may have to rely on the taxpayer to report her income. In this
way, the globalization of taxpayers threatens tax administration by mitigating the
effectiveness of standard information reporting and enforcement tools.
   Finally, telework also has implications for progressivity. Individuals most able to
take advantage of telework arrangements are likely higher-income individuals. As

                                                                             13
1362                                                               D. R. Agrawal, A. Bütikofer


a result, if telework increases the mobility of individuals, then telework increases
the mobility of high-income taxpayers relative to that of lower-income taxpayers.
Even if these issues could be resolved by appropriately designing state tax systems,
telework will still presumably have effects on progressivity. As argued in Agrawal
and Stark (2022), telework has also spurred an increase in within-state mobility as
individuals have fled high-cost urban centers for lower-cost suburban or rural juris-
dictions, as they no longer need to be located close due to no longer facing a costly
commute. With many companies linking the wages they pay to the cost of living
where the worker resides, telework could compress the wage distribution by mitigat-
ing any pre-existing urban wage premium. This, in turn, could effectively reduce the
progressivity of state taxes.
   The move of individuals from city to suburbs also raises interesting issues in
local public finance that are not directly related to the taxation of personal income
(Agrawal & Brueckner, 2022). For example, as individuals flee the city for more
remote parts of the metro area, property values in central cities are likely to fall.
Declines in residential property values are likely to be accompanied by falling rents
in office buildings as firms reduce their office space in central cities. These declines
in both residential and commercial property values will reduce property tax reve-
nues for central cities. Given the property tax is the main tax that funds local gov-
ernments in the USA, this could substantially reduce urban public services, further
amplifying the flight of high-income workers out of central cities. Declines in eco-
nomic activity in urban downtowns will also cause negative effects on restaurants
and retail businesses, reducing sales tax revenue in urban cores. At the same time,
more rural areas of the state will see the opposite effects: Rents and property values
may increase as individuals bid more intensely for suburban land, raising property
tax revenue there.
   Interestingly, the parallels between e-commerce and telework are remarkably
similar. They both raise issues over where to tax economic activity, but also will
work to potentially redistribute tax revenues from traditional centers of agglomera-
tion toward more remote jurisdictions. The “globalization” of taxpayers is similar to
that of consumption and may cause challenges for standard enforcement tools. Each
of these issues deserves more emphasis in the economics literature.

2.3 Fiscal federalism and decentralization

The literature on fiscal federalism debates the benefits and costs of decentralization
(Oates, 1999; Boadway & Shah, 2009). The global nature of the pandemic might
suggest the need for national or even international responses to the public health
and economic crises it created. Under such a view, the COVID-19 crisis may not
be favorable to fiscal federalism, as decentralized policymaking may not internalize
externalities or deal with public health spillovers across jurisdiction’s boundaries.
Despite this, in many federal systems around the world, many pandemic policies—
mask mandates, school closure decisions, vaccine dissemination, social insurance
policies—were allowed to be state or even local decisions or were administered by
state and local governments.


13
Public finance in the era of the COVID‑19 crisis	                                  1363


   The arguments for centralization relate to classic interjurisdictional externalities
and spillovers. For example, failure to contain the spread of the virus in one jurisdic-
tion imposes costs on other jurisdictions if borders are open. In addition, state and
local governments may lack capacity and the administrative capabilities to make a
speedy response to the crisis. Further, the lack of uniformity across jurisdiction may
raise important equity issues, especially in countries like Canada where provinces
act as the primary decision-makers of health care policy or in the USA where states
are often designated to administer social insurance programs.
   At the same time, the fiscal federalism literature suggests that there may be rea-
sons to decentralize pandemic policies to state and local governments. For example,
lower-level governments may have more information “on the ground” related to the
severity of the pandemic. Seegert et al. (2020) argue that lower-level government
policies can perhaps be more effective at mitigating the spread of the virus because
households will infer a better signal from county mask mandates than from federal
mandates. In other words, households can infer from county mandates that the risk
of transmission is high in their area, but federal mandates do not shed light on any
local conditions. Furthermore, local governments may be better able to match their
policies to the preferences of their citizens. Finally, the optimal response to the pan-
demic was quite uncertain, and as a result, decentralized policy making could allow
lower-level governments to experiment and observe other jurisdictions, hopefully
leading to better policymaking as a result of learning.
   At the same time, while some policies were decentralized, others were more
centralized. This implies that state and local governments would need to coordi-
nate some policies with the federal government. Here, coordination problems may
emerge, especially given how politically polarized many pandemic policies such as
mask mandates and school closures were. This inevitably led to conflicts between
state and local government officials who had different political views than those
of federal policy-makers. Given that disagreement, policymakers in those states
may view centralized policymaking as an even worse outcome because the federal
government’s response to the pandemic did not match the interests of the citizens of
their states.
   The COVID-19 pandemic highlighted the many tradeoffs of centralized versus
decentralized policymaking. As a result, many classic problems in the fiscal federal-
ism literature will likely remain in the future. Environmental threats, despite their
global nature, will too be met by decentralized policy making. COVID-19 provides
an opportunity to learn about centralized versus decentralized policymaking in the
presence of a global crisis. Understanding these tradeoffs is important for policy
design and more research is needed on these topics.


2.4 Need for new types of data

Many of the issues discussed above highlight the need for new sources of data that
allow researchers to assess policy and economic impacts across fine levels of geog-
raphy such as urban/suburban/rural areas and at a high frequency. In addition, to
respond to crises, it is useful to have data in near real-time. Many public finance

                                                                             13
1364                                                               D. R. Agrawal, A. Bütikofer


databases do not allow such criterion to be met. For example, the Census of Govern-
ments releases only annual data, does not sample many smaller jurisdictions each
year, and is only released with considerable time lag.
   One approach, taken by Chetty et al. (2020), is to build a database using informa-
tion from companies. But, alternatives often exist. For example, many state govern-
ments release monthly statistics on program statistics or tax revenues at the monthly
or quarterly frequency. The main challenge is then to trade off the ease of acquiring
one state’s data versus attempting to assemble a nationally representative database.
Similar issues likely hold true in other federations and even supra-national institu-
tions such as the European Union. Assembling national (or supra-national) data-
bases come with challenges that states (member states) often release data at different
time lags and frequencies. Furthermore, states do not rely on common local govern-
ment identifiers, so that researchers may need to place considerable effort harmoniz-
ing these data. Certainly, national standards on what statistics, what frequency, and
what government identification codes to use would help the process, but research-
ers can still be creative to assemble these data to shed new light on interesting and
important questions.



3 A brief summary of the IIPF 2021 congress

After the COVID-19 pandemic forced the 2020 Congress to go virtual, our original
intent was to host the 2021 Congress in-person. Þórólfur Geir Matthíasson (Toti)
once again agreed to host the conference in Iceland, expecting to see everyone in
Reykjavík. But, the pandemic prevented this from happening. We are especially
grateful to Toti, and his entire team at the University of Iceland, including Pálmi
Gautur Sverrisson, for hosting the event again. The annual Congress is arguably the
most important event hosted by the IIPF, and it is essential for providing us with
research, networking, and social activities. Toti is responsible for steering the IIPF
through not one—but two—challenging years in a manner that provided the field of
public finance with intellectual rigor and support for all researchers. For that, we are
eternally grateful to Toti and his entire team.
   The theme of the 2021 congress, held virtually from Reykjavík, was “Public
Finance in the Era of the COVID-19 Crisis.” The theme was designed to highlight
the impact of the pandemic on public finance. In particular, the coronavirus created
a public health crisis, triggered economic recessions, and created new challenges
with respect to elementary education, female labor supply, the safety net, digitiza-
tion, and raising tax revenue to fund necessary services. Against this backdrop, we
organized four keynote addresses to focus on such issues. Regular conference sub-
missions could be on any theme, but there were a large number of pandemic-related
papers that were presented at the conference.
   The four keynote talks drew attention to health policy, the social safety net, labor
markets, and the economic impacts of the crisis. The four keynote addresses were:




13
Public finance in the era of the COVID‑19 crisis	                                                1365


• Jérôme Frans Adda (Bocconi University): “Preventing the Spread of Antibiotic
    Resistance”
• Marianne P. Bitler (University of California, Davis) on “Entitlements, Block
    Grants, and the Safety Net: Evidence from the US”
• John N. Friedman (Brown University): “The Economic Impacts of COVID-19:
    Evidence from a New Public Database Built Using Private Sector Data”
• Andrea Weber (Central European University): “What Can We Learn from Tem-
    porary Layoffs and Recall Hires about Firm and Worker Expectations?”

In terms of the regular program, 444 papers were submitted with 334 papers ini-
tially accepted and 300 papers ultimately presented. As the scientific chairs, we were
aided by an outstanding scientific committee.6 The program consisted of 10 sessions
in labor and demographic economics, 9 sessions on corporate and international tax,
7 session on inequality, 6 sessions each of theory, political economy and tax enforce-
ment / administration, 5 sessions on health economics and 4 sessions in local pub-
lic finance. In addition, there were many more sessions on education, consumption
taxes, income taxes, environmental, social insurance, and behavioral economics.
   Of the papers presented, 86 papers applied for IIPF prizes and 71 papers applied
for the ITAX PhD student prize. The Peggy and Richard Musgrave Prize for the best
paper presented at the IIPF Annual Congress was awarded to “Effects of Interna-
tional Tax Provision on Domestic Labor Markets” (Garrett et al., 2021). The IIPF
Young Economists Award was given to “Gender Norms and Income Misreport-
ing within Households” (Roth & Slotwinski, 2021). Finally, the ITAX PhD stu-
dent award was given to “Wealth Inequality in the US: The Role of Heterogeneous
Returns” (Xavier, 2021).
   Due to the virtual nature of the conference, we organized two new initiatives at
the IIPF Congress to facilitate networking and advising for junior scholars. First,
given the pandemic hindered networking, which has been especially harmful for
junior scholars, we organized several hour-long mentoring sessions for individuals


6
  The scientific committee consisted of Daniel Da Mata (Sao Paulo School of Economics FGV, Brazil),
Meltem Daysal (University of Copenhagen, Denmark), Lucie Gadenne (University of Warwick, UK),
Aart Gerritsen (Erasmus University Rotterdam, Netherlands), Anne C. Gielen (Erasmus University Rot-
terdam, Netherlands), Christian Gillitzer (University of Sydney, Australia) İrem Güçeri University of
Oxford, UK), Martin Halla (Johannes Kepler University Linz, Austria), Jarkko Harju (VATT Institute
for Economic Research, Finland), Makoto Hasegawa (Kyoto University, Japan), Xing Jing (Shanghai Jiao
Tong University, China), Sebastian Kessing (University of Siegen, Germany), Nadine Ketel (Vrije Uni-
versiteit Amsterdam, Netherlands), Brian Knight (Brown University, USA), Elira Kuka (George Wash-
ington University, USA), Etienne Lehmann (CRED(TEPP), Université Paris II Panthéon-Assas, France),
Stephan Litschig (National Graduate Institute for Policy Studies, Japan), Olga Malkova (University of
Kentucky, USA), Isabel Martínez (ETH Zürich, Switzerland), Clara Martínez-Toledano (Imperial Col-
lege London, UK), Katherine Meckel (University of California, San Diego, USA), Lucija Muehlenbachs
(University of Calgary, Canada), Athiphat Muthitacharoen (Chulalongkorn University, Thailand), Yuki-
hiro Nishimura (Osaka University, Japan), Raphaël Parchet (Università della Svizzera italiana, Switzer-
land), Paola Profeta (Bocconi University, Italy), Anna Raute (Queen Mary University London, UK),
Johanna Rickne (Stockholm University, Sweden and Nottingham University), Josef Sigurdsson (Norwe-
gian School of Economics, Norway), Marianne Simonsen (Aarhus University, Denmark), Alisa Tazhit-
dinova (University of California, Santa Barbara, USA), and Christian Traxler (Hertie School, Germany).


                                                                                          13
1366                                                                          D. R. Agrawal, A. Bütikofer


currently in a PhD program or within 6 years of graduating (discounting for parental
leave). Eleven mentors volunteered to meet with small groups of 5–6 students, and
we received 68 applications from individuals to participate in mentoring sessions.7
   Second, we attempted to address issues of diversity in the profession. As a result,
we organized a session “Women in Public Economics: How to Thrive in Academia.”
The session was chaired by Nadine Riedel and featured presentation on the status
of women in the profession (Miriam Wüst), publishing (Marianne Bitler), network-
ing (Katarzyna Bilicka) and managing services (Kaisa Kotakorpi). We hope both of
these initiatives persist as the conference returns to its in-person format.
   Finally, the social aspects of the IIPF continued in virtual form. Despite the vir-
tual format of the Congress, the local organizers arranged a live virtual geological
walk around the area of Fagridalur where the volcanic eruption of the Reykjanes
Peninsula was taking place. In addition, Toti and his team organized a happy hour
hosted by Sævar Helgi Bragason that highlighted Icelandic culture, nature, local
foods, northern lights, and Iceland’s innovative solutions for environmental issues.
These events allowed the IIPF to continue its tradition of not only academic, but also
social, interactions among researchers.
   We’re grateful to IIPF President, Clemens Fuest, for his confidence in our ability
to act as scientific co-chairs and deeply appreciative of all the help provided to us by
Barbara Hebele. And as stated previously, we are very grateful to Toti and his team,
for making sure the academic, social, and mentoring aspects of the IIPF continued
through two virtual conferences.


4 Papers in this special issue

This special issue features several papers that were presented at the Congress, some
of which concern to pandemic-related issues, while others focus on more traditional
topics. We briefly summarize each of these papers:
   “Incomplete Program Take-Up During a Crisis: Evidence From The COVID-
19 Shock In One U.S. State” Bitler et al. (2022) investigate the reasons behind a
long-standing issue in public economics: why take-up rates of people eligible for
social-insurance programs are less than 100%. They focus on what determines
partial program take-up in light of the deep and swift COVID-19 recession using
a state-representative survey of Utah households in 2020 and 2021. They focus on
three large social safety net programs in the USA: The Supplemental Nutritional
Assistance Program (SNAP), the Unemployment Insurance Program (UI), and the
Economic Impact Payment program (EIPs, or stimulus). Overall, their results show


7
  The mentors and topics of the mentoring sessions were: David R. Agrawal (Tax Competition, Com-
modity Taxes), N. Meltem Daysal (Health Economics), John N. Friedman (Economic Mobility, Edu-
cation), Clemens Fuest (International Taxation), Etienne Lehmann (Optimal Tax, Theory), Lucija
Muehlenbachs (Energy, Environmental), Victoria Perry (Taxes and Development, Government and Inter-
national Organizations), Nadine Riedel (Publishing in ITAX), Sebastian Siegloch (Local Public Finance),
Marianne Simonsen (Public Policies and Children), Joel Slemrod (Tax Evasion and Enforcement), and
Andrea Weber (Labor Market and Social Policy).


13
Public finance in the era of the COVID‑19 crisis	                                 1367


that the programs were well targeted to those with need, but that many of the non-
participants had even higher need. Among the determinants of non-use of programs
are both classical reasons such as lack of knowledge as well as more behavioral-
science reasons such as difficulty applying. Moreover, stigma is shown to play a role
in the uptake of UI benefits and transactions costs matter less for broadly targeted
programs such as the EIPs.
   “Public Support for Tax Policies in COVID-19 Times: Evidence from Luxem-
bourg” Olivera and Kerm (2022) study the popular support for the introduction of
hypothetical new taxes to finance the cost of the COVID-19 pandemic in Luxem-
bourg. In a survey carried out in late spring/early summer 2020, respondents were
asked for their agreement with: a one-time net wealth tax, an inheritance tax, a
temporary solidarity income tax, and a temporary increase in the value-added tax
(VAT). Characteristics and attributes of the tax system (e.g., rates and exemption
amounts) were randomly assigned. The results suggest relatively high support for
a one-time net wealth tax and the introduction of inheritance taxes on direct heirs,
but relatively low support for increases in VAT and income taxes. Support for each
of them is negatively associated with the predicted revenues. However, the results
indicate that a one-time wealth tax could raise substantial revenues and still garner
public support, while the expected revenue from the proposed and supported inherit-
ance tax scenarios would be rather low.
   “The Impact of COVID-19 on Japanese Firms: Mobility and Resilience via
Remote Work” Kawaguchi et al. (2022) investigate how the regulations concerning
social distancing at the start of the COVID-19 pandemic affected Japanese firms and
whether firms’ adoption of work-from-home arrangements helped them mitigate the
negative impact on performance. Using data from a survey of Japanese firms during
the COVID-19 pandemic, the results show that the lockdown measures significantly
reduced mobility, sales, and hours worked, but did not alter employment. Moreover,
the paper documents that firms that adopted work-from-home possibilities prior to
the pandemic were less affected by the social distance measures and less in need for
government subsidies.
   “Corporate Taxes and Union Wages in the United States” Felix and Hines (2022)
provide an interesting new perspective on the old idea of tax incidence. It starts with
the positive premium between union and non-union wages and then explores to what
extent this differential is sensitive to state taxes. Among other findings, in 2000,
workers in unionized firms receive some of the benefits of lower taxes: High corpo-
rate tax rates are associated with lower union wage premiums. This effect is larger
for capital-intensive industries and in states without right-to-work laws. By 2019,
however, state tax rates appear to have little effect on the union wage premium,
reflecting declines in union power and changes in the opportunity cost of capital.
   “The Impact of the International Tax Reforms Under Pillar One and Pillar Two
on MNE’s Investment Cost” Hanappi and Cabral (2022) examine the impact of the
OECD’s Pillar One and Pillar Two proposals on investment costs for multinational
enterprises (MNEs). For this purpose, the authors extend the model of Devereux and
Griffith (2003) by considering multinational profit shifting and the various provi-
sions in the two proposals. Then, they calculate the changes in the effective aver-
age tax rates (EATRs) and the effective marginal tax rates (EMTRs) following the

                                                                            13
1368                                                              D. R. Agrawal, A. Bütikofer


implementation of these two proposals. The main finding is that the implementation
of the two proposals (particularly, the Pillar Two proposal) would modestly increase
the average EATR and EMTR.
    “Tax Haven, Pollution Haven or Both?” Madiès et al. (2022) propose a game-
theoretic intergovernmental competition model in which two countries compete
both in corporate tax rates and environmental standards. Policy-making is assumed
to be sequential. In the first stage, countries compete in environmental standards,
and then, countries compete in corporate tax rates in the second stage. This sequen-
tial structure creates a “strategic motive” in the choice of environmental standards
because the equilibrium tax rate of the opponent country in the second stage can be
manipulated by the choice of environmental standards in the first stage. Large coun-
tries never act as both a tax “heaven” and pollution “heaven.” However, higher firm
mobility narrows the tax gap between the large and the small countries but does not
affect the optimal environmental policy because tax competition protects countries
against the detrimental effect of globalization on emission caps.
    “Political Alignment and Project Funding” Schneider et al. (2022) investigate
how the alignment of party affiliation of politicians at the federal and local level
influence the spatial distribution of funding for research, development, and innova-
tion projects. Using detailed data on publicly funded projects in Germany from the
period 2010 to 2019, the findings indicate that having a state government that is
of the same party as the providing federal ministry is associated with a substantial
increase in the amount of funding received. While the exact party alignment is cru-
cial, as parties in the same governing coalition or on the same political spectrum do
not see the same benefits, party alignment influences only the funding amount, par-
ticularly for smaller projects, and not the number of projects.


5 Conclusion

The COVID-19 pandemic has changed the world we live in. While many classic
questions in public economics remain important, the COVID-19 crises raises new
issues worthy of study. We hope this article provides a guide for researchers to begin
thinking about these questions and stimulates new and interesting sources of data to
answer these questions.
   The long-term consequences of the pandemic are potentially stark. While much
of the focus of this paper has been on policy heterogeneity within countries and the
resulting effects on within-country inequalities, the pandemic also has important
effects across countries. One obvious area is related to inequities in vaccination cov-
erage. In particular, only 11% of the population in low-income countries has been
vaccinated, compared to 73% in high-income countries (WHO, 2022). In the early
days of the pandemic, the supply of vaccines and the funding model of vaccines
were the main constraints, but now, low-income countries face challenges in vaccine
delivery. As the vaccine is one of the critical ways to control the pandemic, these
inequities in vaccinations mean that lower-income economies face further chal-
lenges in terms of the economic recovery and educating school-aged children. These
issues could have long-term effects on the development and growth of countries.

13
Public finance in the era of the COVID‑19 crisis	                                                          1369


   In addition to vaccine equity, the heterogeneous impacts of the pandemic may
have increased global income inequality. Deaton (2021) shows that when countries
are weighted by population, international income inequality increased, but much of
this is due to the divergence between India and China. But, the longer-term cross-
country effects on inequality resulting from lost human capital development or the
pandemic exacerbating pre-existing conditions in labor markets remain uncertain
and should be an area of focus in comparative studies of the pandemic.


Acknowledgements Both authors are members of the CESifo Research Network. This article reflects on
the 2021 IIPF Congress theme from our perspective as scientific co-chairs of the Congress. We thank Cle-
mens Fuest, Þórólfur Geir Matthíasson, Barbara Hebele and the International Institute of Public Finance.




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