Essays on Monetary and Public Economics

This dissertation is a collection of three independent essays in monetary and public economics. The first paper, co-authored in equal parts with Marko Köthenbürger, analyzes the tax and expenditure effects of municipal mergers in Switzerland. Municipal mergers are commonly implemented in federally-organized economies, with the intention to realize economies of scale and cost savings. In the paper, we use the universe of Swiss municipalities to test for tax and expenditure effects of mergers. Swiss municipalities enjoy a huge degree of tax autonomy and experienced various merger waves over the time period 1991 to 2020. In this setting, expenditure effects are not muted due to missing tax autonomy. We find that municipal mergers reduce the municipal tax rate by 6 percent. The tax rate reduction primarily falls on the smaller merging partner and is significantly smaller for the larger partner in the merging process. In contrast, public expenditures are almost unchanged, while administrative expenditures decrease, as intended by municipal mergers. The second paper, equally co-authored with Gabriel Loumeau, investigates the equilibrium effects of fiscal autonomy accounting for benefits from self-determination. It proposes a quantifiable structural equilibrium framework in which imperfectly mobile heterogeneous households sort themselves across jurisdictions under endogenous public good provision, local tax multipliers, and housing prices. We calibrate the framework to fit the economic and geographic characteristics of the Canton of Bern using household-level data on the universe of households residing in the Canton. To do so, we exploit quasi-natural policy variation in voting rights to quantify benefits from self-determination, and employ machine learning methods to predict local tax rates accurately. For standard values of benefits from self-determination, we find that restricting local fiscal autonomy decreases welfare for (almost) all households. Yet, more mobile households (e.g., richer with less kids) have more to gain. Finally, the single-authored third paper, asks whether the existing evidence on the inverse relationship between market experience and the degree of loss aversion can explain the transmission pattern of low and negative policy to wholesale and retail deposit rates. To this end, I allow for loss averse depositors within a simple two-period differentiated products duopoly with switching costs. It turns out that if depositors are especially averse to negative deposit rates, banks keep deposit rates at zero as policy rates decline, while accepting squeezed and possibly negative deposit margins. The lowest current policy rate at which the banking system is willing to shield depositors from a negative deposit rate decreases with increasing i) degrees of loss aversion; ii) levels of switching costs; and iii) market expectations about the future policy rate. A calibration of the model indicates how low central banks could effectively go without taking steps to make paper currency more costly