Bank of Lithuania
2022-03-01
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The Board of the Bank of Lithuania has awarded prizes of €10,000 and €5,000 for the best research papers in economics. The Vladas Jurgutis Award was granted to Alminas Žaldokas, Abhiroop Mukherjee and Manpreet Singh, co-authors of a collective research paper on the relationship between tax changes and innovation, and Vytautas Valaitis received the award for his dissertation in economics. His dissertation consists of three separate articles each of which broadens the economic theory adding aspects allowing to reassess optimal tax and public debt policies.

In their research paper entitled “Do corporate taxes hinder innovation?”, Alminas Žaldokas, Abhiroop Mukherjee and Manpreet Singh, winners of the Vladas Jurgutis Award, use the natural experiment methodology to analyse the relationship between corporate taxes and investments by firms in innovation. The authors compare similar companies located close to internal borders of different states in the US. These states are separated only by state borders and have similar exposures to economic trends which makes it possible to estimate what happens when one of these states raises corporate taxes for reasons unrelated to the overall economy. The paper concludes that companies in states that raise taxes cut their investment in innovation, start to obtain fewer patents for innovation and place fewer new products on the market. This ultimately affects economic growth as well. The paper was published in the Journal of Financial Economics, one of the leading academic journals in finance.

“Our paper also establishes that this effect is asymmetric: while companies reduce innovation after corporate taxes are raised, it takes much longer for companies to build up teams of employees and start investing in innovation when taxes are reduced. So, if an increase in corporate taxes reduces innovation, it may not be so easy to reverse this effect with a subsequent tax cut,” says Alminas Žaldokas, co-author of the paper and Associate Professor at the Hong Kong University of Science and Technology.

The dissertation of Vytautas Valaitis, winner of the award, consists of three separate essays: Housing Illiquidity, Asset Prices and the Amplification of Macroeconomic Shocks; Wealth and Hours; and Machine Learning Projection Method for Macro-Finance Models.

The dissertation investigates the link between people’s desire to work and their preference to consume higher quality products. To do this, Valaitis develops a new macroeconomic model in which people value not only the quantity of products they use but also their quality. Using data from the US, he finds that people do not necessarily consume more as their income rises but rather they seek to purchase better products and therefore value quality over quantity. This means that a job loss does not trigger a reduction in household consumption to the same degree as previously assumed, even if consumption expenditure shrinks. The desire to consume better products also acts as an incentive to work. These insights allow policy makers or researchers to make a better assessment of fiscal policy instruments such as progressive taxation and unemployment benefits. In his dissertation, Valaitis also analyses the link between real estate and stock markets and develops a neural network approach to solving economic models.

“Since I studied political sciences in the past, my main research interests lie in the economic policy. The findings of my dissertation are important for a better understanding of how measures regulating the labour market affect consumption, investment and stock markets. And the neural network approach allows analysing the optimal public debt policy using increasingly realistic models,” says Valaitis who is currently a post-doctoral researcher at the European University Institute.

Every year in August and September the Bank of Lithuania invites economic researchers and those with a Ph.D. in economics or finance to apply for the award. The papers submitted are assessed by a commission comprising researchers from the Bank of Lithuania’s Center for Excellence in Finance and Economic Research (CEFER) and representatives of Lithuanian and foreign universities. This year, the commission reviewed four research papers whose authors had applied for the Vladas Jurgutis Award and eight applications for the award for a dissertation in economics.

The Vladas Jurgutis Award pays tribute to academic, professor Vladas Jurgutis, the first Governor of the Bank of Lithuania, and his merits to national banking. The amount of the award is €10,000. The Bank of Lithuania Award for Dissertation in the Field of Economics is granted to honour the authors of the best dissertations in economics or related fields, defended during the last two years up to August 1 of the current year. Its amount is €5,000. Further information on the awards granted by the Bank of Lithuania is available here.