In the area of International Public Economics we study intergovernmental problems between nation states. A major characteristic of these is the absence of a supra-government that could play a role as a regulator and guarantor of contracts in intergovernmental interactions. Application of non-cooperative game theory can make us better understand many phenomena in the international sphere, such as problems of international tax competition, the role of tax havens and offshore jurisdictions or supranational organizations such as the OECD, international tariff policy, formation of tax or tariff unions. For instance, a recent Ph.D. thesis in this area is by Tim Stolper who studied competition and coordination problems among tax havens, and the role of the leaking of data to tax authorities.

The Theory on the Political Economy of Conflict tries to understand conflict as a form of interaction, using economic tools and looking at conflict through the spectacles of an economist. Conflict comes in many formats and contexts: Political electoral competition, conflict between interest groups, and international conflict are prominent examples. In most contexts conflict is between groups. This is one of the reasons why the economic theory of groups – how and why do they form? What is their internal governance? What determines their attitudes towards other groups? How can groups overcome free-rider problems inside the group? – is of particular interest for us.

Finally, we pursue research on Economic Optimizing Behavior when the Social Context Matters. This includes aspects about how social norms, social capital, reputation concerns or self-image concerns affect economic decision-making in a social context. An area in which we pursued such questions, in particular in the last few years, is the analysis of compliance behaviour and deviations from it. More bluntly, we contributed to the big topic of when and why people report truthfully or not and what governs such decision processes. Evidently, these questions are particularly important when studying public finance issues, such as tax compliance.

Selection of former Ph.D. Theses:

May Elsayyad, Kai A. Konrad. Fighting Multiple Tax Havens. Max Planck Institute for Tax Law and Public Finance Working Paper 2011 – 01.

This paper develops a competition theory framework that evaluates an important aspect of the OECD's Harmful Tax Practices Initiative against tax havens. We show that the sequential nature of the process is harmful and more costly than a "big bang" multilateral agreement. The sequentiality may even prevent the process from being completed successfully. Closing down a subset of tax havens reduces competition among the havens that remain active. This makes their "tax haven business" more profitable and shifts a larger share of rents to these remaining tax havens, making them more reluctant to give up their "tax haven business". Moreover, the outcome of this process, reducing the number of tax havens, but not eliminating them altogether, may reduce welfare in the OECD.

May Elsayyad, Florian Morath. Technology Transfers for Climate Change. Max Planck Institute for Tax Law and Public Finance Working Paper 2012 – 09.

This paper considers investments in cost-reducing technology in the context of contributions to climate protection. Contributions to mitigating climate change are analyzed in a two-period public goods framework where later contributions can be based on better information, but delaying the contribution to the public good is costly because of irreversible damages. We show that, when all countries have access to the new technology, countries have an incentive to invest in technology because this can lead to an earlier contribution of other countries and therefore reduce a country's burden of contributing to the public good. Our results provide a rationale for the support of technology sharing initiatives.

Luisa Herbst, Kai A. Konrad, Florian Morath.  Endogenous Group Formation in Experimental Contests. Max Planck Institute for Tax Law and Public Finance Working Paper 2012 – 10.

We experimentally study endogenous alliance formation and contest effort choices in a generic three-player contest. Differences in intrinsic or extrinsic incentives to expend effort cause self-selection. Weakly motivated players have an incentive to enter into an alliance and to free-ride on strongly motivated players; hence, strong players prefer to stand alone. Self-selection has direct consequences for effort in endogenously formed alliances. But we also find evidence of an effort stimulating effect if players endogenously form an alliance, which is in line with theories of in-group favoritism. The experimental evidence on self-selection is in conformity with a theory analysis of the game.

Philipp Meyer-Brauns. Optimal Auditing with Heterogeneous Audit Perceptions. Max Planck Institute for Tax Law and Public Finance Working Paper 2014 – 06.

This paper derives a government's optimal tax audit policy when taxpayers hold different beliefs about the likelihood of a tax audit. When audits are inexpensive, differences in perceived audit risk lead to stricter optimal auditing in equilibrium. If audits are relatively costly, heterogeneity in audit perceptions lowers the equilibrium audit intensity. Except when beliefs are near-identical throughout the population, both tax evasion and honest reporting occur in equilibrium. A welfare analysis shows a non-monotonic, U-shaped relationship between perception heterogeneity and social welfare. High levels of social welfare are associated with very homogeneous or very heterogeneous populations. Moderately heterogeneous taxpayer populations are associated with lower levels of social welfare.

Luisa Herbst, Kai A. Konrad, Florian Morath. Balance of Power and the Propensity of Conflict. Max Planck Institute for Tax Law and Public Finance Working Paper 2014 – 13.

We study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict. Our experimental results suggest: In a simple bargaining game with an exogenous mediation proposal, the likelihood of conflict is independent of the balance of power. If bargaining involves endogenous demand choices, however, the likelihood of conflict is higher if power is more imbalanced. Even though endogenous bargaining outcomes reflect the players unequal fighting strengths, strategic uncertainty causes outcomes to be most efficient when power is balanced. In turn, the importance of exogenous mediation proposals depends on the balance of power.

Michael Hilmer. Too Many to Fail - How Bonus Taxation Prevents. Gambling for Bailouts. Max Planck Institute for Tax Law and Public Finance Working Paper 2014 – 18.

Using a simple symmetric principal-agent model with two banks, we study the effects of both bailouts and bonus taxes on risk taking and managerial compensation. We assume financial institutions to be systemic only on a collective basis, implying support with bailouts only if they both fail collectively. This too-many-to-fail assumption generates incentives for herding and collective moral hazard. If banks can anticipate bailouts, they can coordinate on an equilibrium in which they collectively incentivize higher risk-taking. A bonus tax can prevent this excessive risk-taking, even if it is implemented unilaterally: proper bonus taxation reduces risk-taking of the taxed bank(s) and, consequentially, rules out the equilibrium with excessive risk-taking of both banks and reestablishes market discipline.

Harald Lang, Florian Morath. A Glance into the Tunnel: Experimental Evidence on Income Comparisons under Uncertainty. Max Planck Institute for Tax Law and Public Finance Working Paper 2015 – 13.

Learning that others earn more may reduce individual well-being but it can also be informative about the own income prospects. In an environment of uncertainty over the own income, this paper provides experimental evidence on direct income-comparison effects on well-being and informational effects from observing signals about others income prospects. We find that individual beliefs about the own income are adjusted downwards when observing that others are likely to earn less, but do not significantly adjust when observing that others are likely to earn more. Individual satisfaction decreases when others are likely to earn more but does not change significantly when others are likely to earn less. Overall, informational effects countervail direct income-comparison effects if and only if the uncertainty over the own income is sufficiently strong.

Niels Johannesen, Tim B.M. Stolper. The Deterrence Effect of Whistleblowing – An Event Study of Leaked Customer Information from Banks in Tax Havens. Max Planck Institute for Tax Law and Public Finance Working Paper 2017 – 04.

We document that the first leak of customer information from a tax haven bank caused a significant decrease in the market value of Swiss banks known to be assisting with tax evasion and that the decrease was largest for the banks most strongly involved. These findings suggest that markets expected the leak to increase the perceived risk of committing and assisting with tax evasion and thus to lower both demand and supply in the market for criminal offshore banking services. This interpretation finds support in further evidence that the leak caused a sharp drop in foreign-owned deposits in tax havens.

Tim Lohse, Sven A. Simon. Compliance in Teams - Implications of Joint Decisions and Shared Consequences. Max Planck Institute for Tax Law and Public Finance Working Paper 2018 – 03.

In today's business environment, team work is omnipresent. But might teams be more prone toward non-compliance with laws and regulations than single individuals despite imminent negative consequences of uncovering misconduct? The recent prevalence of corporate delinquencies gives rise to this concern. In our laboratory experiment, we investigate the determinants of teams' compliance behavior. In particular, we disentangle the effect of deciding jointly as a team of two from sharing the economic consequences among both team members. Our findings provide evidence that teams are substantially less compliant than individuals are. This drop in compliance is driven by the joint, rather than the individual, liability of team members. In contrast, whether subjects make their decisions alone or together does not influence the overall compliance rate. When coordinating their compliance decision teams predominately discuss the risk of getting caught in an audit, and team decision-making is characterized by behavioral spillovers between team members. Holding each team member fully liable is a promising means to deter them from going astray.

The Max Planck Institute for Tax Law and Public Finance is a member institute of the Max Planck Society, which is Germany’s most renowned and governmentally funded basic research institution. The Department of Economics is one of two departments of the Institute.

The group of researchers in the Department of Public Economics consists of Ph.D. students, more senior researchers who have a Ph.D. but are in a non-tenured position, and a director. The group as of 2020 is very international and includes members from
Austria (1) , China (1), Czech Republic (1) , Germany (4), India (2), Italy (2)  and Serbia (1).

You can find out more about the current composition of the group if you visit the homepages of its members.

Following the MPG guidelines, the department offers the standardised Max Planck Ph.D. contract. This contract runs for an initial period of three years. The contract defines the PhD project as the central part of the students’ duties. Students are also full members of the Munich Graduate School of Economics (MGSE) and attend the courses of this programme. These courses are taught at the university.

Compensation is set at 75% of the scheduled pay for salary group 13 as per the Collective Wage Agreement for the Civil Service (Tarifvertrag für den Öffentlichen Dienst, TVöD). The research support contract establishes an employment relationship with mandatory social security contributions. In particular, this means that doctoral students do not need additional private health insurance.

Financial support is available for participating in national and international conferences, symposia, and seminars or a stay at a research institute in Germany or abroad and doctoral students are eligible for these funds.

Doctoral students find a research environment with excellent facilities, including a library which is unique concerning the collection of textbooks on issues of taxation and a most comprehensive digital library of academic journals.

Each doctoral student receives office space at the Institute in the heart of Munich, close to Hofgarten and Englischer Garten, to the Ludwig-Maximilians-University Munich (LMU) and to the Bavarian State Library.

The Institute is part of an active research network. This network includes close collaboration with researchers of the LMU. The Department of Economics at the LMU is one of the leading departments in economics in Germany and offers a large number of regular research seminars with international speakers.

As the Institute is purely a research institution, there is no obligation to teach courses. If a doctoral student wishes to teach, this is possible as part of the partnership with the Faculty of Economics at LMU.

Ph.D. students who have already passed the coursework of a high-quality graduate programme at another institution may apply any time by email.        

New entrants into the Ph.D. programme have to apply for the graduate programme of the Munich Graduate School of Economics online. Typically, the online application period for the forthcoming academic year starting on 1 October opens well in advance, around 15 December of the previous year and closes in March. Please double check the dates on the homepage of the MGSE.