Dr. Tidiane Ly, Dr. Sander Ramboer (p)

We study how tax‐sharing agreements shape local fiscal policy in cross-border labor markets. In the Belgian–Luxembourg border region, the bilateral tax treaty assigns taxation of frontier workers’ labor income to the country of employment. As a result, Belgian municipalities cannot levy their main local income tax surcharge on residents who work in Luxembourg, even though these commuters continue to rely on municipal services in Belgium. To compensate municipalities for this treaty-induced loss of tax base, Luxembourg introduced the Fonds des Frontaliers (FdF) in 2004. The scheme is designed as a matching mechanism linked to municipalities’ foregone local income tax revenue and has undergone several reforms, most notably an expansion and retargeting in 2015 that increased the degree of compensation while tightening eligibility.

Using panel data on municipal tax rates, grant allocations, commuting exposure, and socio-demographic characteristics, we estimate the effect of the FdF on local tax setting. Our empirical strategy compares municipalities with sustained exposure to frontier work to other Belgian municipalities and we assess dynamics around the introduction and reform episodes. We find that the introduction of the fund is associated with a relative decline in local income tax rates, consistent with a budgetary relief effect. In contrast, subsequent reforms that increased the compensation rate are followed by relative increases in local income tax rates, consistent with incentives embedded in the matching design: higher statutory surcharges mechanically raise measured “lost revenue” and hence grant receipts. We find little evidence of comparable adjustments in local property tax rates, which apply irrespective of the place of work. The results highlight how the design of cross-border compensation schemes can alter local fiscal incentives and, by extension, the distribution of tax burdens in border regions.

Dr. Ketevani Kapanadze (p)

In response to the COVID-19 pandemic, Schengen countries temporarily reintroduced internal border controls, reversing a decades-long trend of European integration. While existing research has focused mainly on national-level effects of border closures, localized economic consequences remain underexplored. This paper leverages the disruption of cross-border mobility as a natural experiment to study the short-run economic impacts of border closures on European municipalities. Using monthly nighttime lights data, we find that border closures reduced economic activity in border municipalities by approximately 2% relative to interior municipalities. The effects are highly heterogeneous. Small municipalities, Eastern border municipalities, and Western municipalities bordering Eastern countries experienced losses, whereas Western border municipalities bordering other Western countries benefited from increased domestic demand. Importantly, we show that the economic impact of cross-border mobility depends on why people cross borders. When mobility supports production - by providing labor, services, or inputs - border closures disrupt supply chains and local economic activities suffer (productive mobility). However, when mobility is mainly for leisure or social visits, restrictions tend to redirect spending toward domestic alternatives, creating localized benefits (discretionary mobility). These findings highlight the importance of place-sensitive policy responses in times of crisis.

Dr. Giulio Breglia (p), Dr. Davide Di Marcoberardino, Prof. Marco Modica

This paper investigates the economic resilience of Central European regions to large-scale flood shocks, focusing on the major transnational flood of 2013. The event affected multiple countries across the Danube and Elbe basins and provides a natural experiment to study how heterogeneous regional economies respond to a common shock. We focus on the role of national borders in shaping recovery dynamics. Using a triple difference-in-differences model, we investigate whether affected NUTS-3 regions located along national borders exhibit different medium-term recovery patterns compared to non-border affected regions. The results indicate that the 2013 floods exerted a negative and statistically significant effect on GDP growth. Border regions exhibit a modest but positive resilience premium, especially when the adjacent cross-border region is also affected. These findings highlight how cross-border exposure can activate cooperative mechanisms that mitigate the economic costs of natural hazards.