This paper analyzes how (local) tax havens function. Using the German municipal business tax setting as a laboratory, I investigate the characteristics and emergence of local tax havens. I demonstrate that local tax havens are situated in close proximity to large agglomeration areas, while firms' profit-to-wage ratios in these jurisdictions are exceptionally high. I document that the amount of local profit shifting is substantial. The empirical results indicate that local profit shifting is of a similar magnitude to recent findings regarding international profit shifting by German multinationals. I deploy synthetic difference-in-differences methods, combined with administrative data sources and standard profit-shifting equations, to estimate the amount of profit shifting to local tax havens. Between 2013 and 2019, around 52 billion Euros of corporate profits were shifted to local tax havens. The results are driven by a small number of large firms that offer business and financial services. The direct fiscal cost to non-tax haven municipalities amounts to roughly 7.9 billion Euros, while tax haven municipalities gain around 4.3 billion Euros in tax revenues. I conduct a case study on the emergence of Germany's largest local tax havens. I estimate that between 2012 and 2019, around 20.5 billion was transferred to its jurisdiction. The increase in local tax revenues is used to reduce public debt burdens and finance a high level of public expenditures.

This paper analyzes the local economic impacts of military troop deployments. We exploit variation from the historic large-scale US troop withdrawal from Germany triggered by the end of the Cold War, to estimate the effect on local labor markets and local public finances. We use administrative data provided by the US Department of Defense to precisely quantify the size of the troop withdrawal at the municipal level. Using a synthetic difference-in-differences estimator, we find negative effects on local labor markets. Per one withdrawn US soldier, the number of local jobs decreases by 0.53. The decrease in economic activity results in a reduction of revenues for affected municipalities. To balance decreased revenues, affected municipalities lower their expenditures, while increasing business and property tax multipliers. Viewed as a place-based policy, the US troop deployment was rather ineffective in creating local employment. We estimate the cost per job to be USD 110,400 of US military spending. We supplement the municipal-level results with a worker-level analysis. We document that workers displaced by the closure of a US military base have persistently lower employment rates. At the same time, their daily wages are around 9.2 percent lower fifteen years after their layoff. The negative impact on labor outcomes is particularly pronounced for women, older workers, and those employed in regions with more unfavorable initial labor market conditions.

In this paper, we investigate the effect of import and export shocks on German municipalities’ local business tax (LBT) bases and fiscal outcomes for the period from 1992 to 2012. Import shocks have a detrimental effect on local outcomes, while export shocks increase LBT bases as well as municipal revenues and expenditures. The effect on expenditure patterns depends on municipalities’ initial fiscal and economic conditions. Results are stronger in the 2002 to 2012 period than in the 1992 to 2002 period. We find that our results are mostly driven by trade between municipalities located in West Germany and Eastern Europe. We supplement our municipal-level analysis with administrative data on corporate tax returns at the firm-level. We document that the aggregate results are driven by very large manufacturing companies. We do not find any spillover effect on the taxable profits of non-manufacturing firms.