The New Paradigm Papers of the Month of August

An Estimation and Decomposition of the Government Multiplier

Marius Clemens, Claus Michelsen, Malte Rieth

Public investment pays off more than most think. Using German fiscal data, the authors find a multiplier of 2: every euro of government investment generates roughly two euros in output. The effects work through three channels: cheaper private investment in the short run, higher productive capacity in the medium run, and broader demand spillovers across supply chains. Importantly, the same dynamics are visible in other euro area economies, underscoring the role of public investment as a driver of private sector growth.

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How Much Tax Do US Billionaires Pay? Evidence from Administrative Data

Akcan S. Balkir, Emmanuel Saez, Danny Yagan, Gabriel Zucman

Billionaires in the US are paying less tax than the average citizen. Linking Forbes 400 data with IRS tax records, this study estimates that the richest US households face an effective tax rate of just 24% — lower than the average and far below top labor income earners. The gap arises because economic income far outpaces taxable income for the ultra-wealthy, while estate and gift taxes add little. Preferential treatment of pass-through business income and only modest offsets from charitable giving reinforce the imbalance.

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Carbon Pricing and Inequality: A Normative Perspective

Saki Bigio, Diego Känzig, Pablo Sánchez, Conor Walsh

Economists love carbon taxes because in theory they are the most efficient tool. But even the most efficient policy falls short if it lacks political support. A new NBER working paper shows that political resistance to carbon taxes reflects genuine distributional harm, not just populist pushback. It documents that a 1% rise in energy costs from carbon pricing cuts welfare by 1.5% of annual consumption, with the burden falling disproportionately on younger, poorer, and less educated households. The effects are most severe in Southern and Eastern Europe. The results underline the need for a broader climate policy mix beyond carbon pricing.

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Downward Mobility and Far-Right Party Support: Broad Evidence

Alan Jacobs, Mark Kayser

The rise of far-right parties across Europe is often blamed on migration, with policy responses centered on restrictive measures. In a new study, Jacobs and Kayser provide a more nuanced view on the rise of populism, tracing the answer to downward social mobility. Using data from 11 countries, they find that people who experience intergenerational declines in occupational status are significantly more likely to back far-right parties. Upward mobility, by contrast, has little effect on political preferences. The findings highlight how fears of status loss — not just ideology — fuel the far right’s rise.

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Die Verdopplung des AfD-Elektorats

Andreas Hövermann

The AfD doubled its vote share in the 2025 Bundestag election and is currently polling as the strongest party. Drawing on WSI panel data, this study shows that the party’s base has expanded among women and centrist voters, while remaining especially strong among workers. Key drivers include rising migration anxieties, feelings of injustice, and crises such as the pandemic and inflation. Attitudes toward refugees have hardened across the electorate, broadening the AfD’s appeal beyond its traditional strongholds.

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Rechtfertigt Klimapolitik eine Erhöhung der Verschuldung? Plädoyer für eine grün-goldene Regel

Ottmar Edenhofer, Ulrich Eydam, Maik Heinemann, Matthias Kalkuhl, Nikolaj Moretti

Can climate action justify higher public debt? This paper makes the case for a “green-golden rule” linking new borrowing to emission reductions or carbon pricing revenues. Unlike rigid fiscal rules, this approach would tie debt capacity to avoided climate damages. The authors calculate that with a social cost of €200 per ton of CO₂, Germany could justify up to €161 billion in additional debt by 2030 — provided it delivers on its targets.

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