December 2019

Drago, Galbiati, Sobbrio, 24 December 2019

Assessing how voters respond to public policies they like or dislike is challenging due to the absence of counterfactual scenarios. This column exploits a collective pardon of prisoners in response to prison overcrowding in Italy in 2006 to show that voters punish incumbent politicians for unpopular policies they are deemed responsible for. Regions with greater incidents of recidivism were those where incumbent politicians fared more poorly in post-pardon elections.

Gantchev, Giannetti, Li, 24 December 2019

There is growing consensus that as well as maximising shareholder value, listed companies should also take into account their shareholders’ environmental and social concerns. This column aims to shed light on whether market discipline can influence corporate behaviour. The findings indicate that through their sales and purchases, investors and customers can effectively impose their social preferences on firms, suggesting that market discipline indeed works.

Baldwin, 24 December 2019

Team Vox wishes to thank all its readers and contributors for making 2019 another great year for the site. Vox will post no new columns between 24 December 2019 and 2 January 2020. 

Brülhart, Gruber, Krapf, Schmidheiny, 23 December 2019

Wealth taxes are in vogue, and academic research on the subject is picking up. Recent studies have produced widely diverging estimates of the elasticity of the wealth tax base. Some of this is due to methodological differences. This column analyses wealth taxes in Swiss cantons and shows that jurisdiction size and enforcement also play a role. When applied at the sub-national level and without third-party reporting, wealth taxes are particularly easily avoided.

Evenett, Fritz, 23 December 2019

The populist and nationalist turn in many nations’ politics has sharpened the rhetoric against globalisation. This column introduces the latest Global Trade Alert report, which confirms that this rhetoric has translated into greater protectionism and less trade liberalisation worldwide. 

Exley, Kessler, 23 December 2019

Women earn less than men at every level of employment, an inequality that has persisted for decades. This column examines one potential factor, namely, a sizeable gender gap in self-promotion. It considers four possible causes for this gap – performance, confidence, strategic incentives, and ambiguity – and while none can explain the gap alone, they do shed light on some of the labour market perceptions women may internalise over time, and to which employers should be sensitive in hiring practices.

Bandiera, Pritchett, 23 December 2019

This year's Nobel prize celebrated the work of the economists who popularised randomised controlled trials, “for their experimental approach to alleviating global poverty”. But is it possible to have too much of a good thing? Tim Phillips investigates.

Picture © Nobel Media 2019. Illustration: Niklas Elmehed

Otrachshenko, Popova, Tavares, 22 December 2019

There is evidence that hot climatic temperatures and crime are linked. With climate change raising temperatures around the world, it is possible we may see higher levels of personal aggression. Based on data from Russia, this column shows that on hotter days, women are more likely to be killed in homicides, especially over weekends. Colder days have no similar effect on violence. Lower wages and higher unemployment contribute to higher homicide rates, so policies promoting employment may mitigate victimisation during extreme temperature days.

Jensen, Zoega, 21 December 2019

Everyone contributes equally to government-run pension schemes, but not everyone will spend the same number of years in retirement – blue-collar workers, for instance, do not live as long as their white-collar counterparts. Rather than pooling the resources of a heterogeneous group of workers, this column proposes that each worker receive a lump sum at a certain age, which they can then give to an occupational pension fund better informed about the life expectancy of its own participants.

Gorodnichenko, Pham, Talavera, 21 December 2019

Conferences are undoubtedly an important part of academic life, but little is known about the extent to which conference presentations can advance researchers in their attempts to publish in scholarly journals. This column analyses more than 4,000 papers presented at three leading economics conferences over the 2006-2012 period, and finds that conference presentation is positively related to the likelihood of publication in high-quality journals. It also suggests that participating in major conferences helps improve research impact and visibility.

Durante, 20 December 2019

New research demonstrates what we all suspected: for decades, politicians have routinely used busy news days to bury unpopular announcements. Ruben Durante educates Tim Phillips in the politics of distraction.

Andersen, Leth-Petersen, 20 December 2019

House prices and aggregate spending move together, but little is known about the underlying mechanism linking the two. This column introduces a test to discriminate between the housing wealth effect hypothesis, which says that homeowners consider home value changes as windfalls, and the collateral effect hypothesis, which says that a home value increase generates additional collateral that can be borrowed against. Homeowner behaviour in response to home value rises when they are close to their collateral borrowing constraint, suggesting that the collateral effect is important for explaining the link between house prices and spending. 

Margalit, 20 December 2019

A common explanation for the rise of populism is economic insecurity driven by forces such as trade, immigration, or the financial crisis. This column, part of the Vox debate on populism, argues that such view overstates the role of economic insecurity as a driver. In particular, it conflates economic insecurity being important in explaining the overall populist vote and being important by affecting election outcomes on the margin. The empirical findings indicate that the share of populist support explained by economic insecurity is modest.  

Cassola, Kok, Mongelli, 20 December 2019

In 2012, European leaders decided to establish a pan-European supervisory authority at the ECB, and in November 2014 direct banking supervision and an important role in financial stability were added to the monetary policy responsibilities of the central bank. This column examines what this has meant for the organisational structure of the ECB, asking why the decision was made, what the working arrangements of this enlarged ECB are, and what the similarities and synergies among these three functions are.

Barone, Fougère, Pin, 19 December 2019

Interventions that encourage parents to read with their pre-school aged children can be a cost-effective way to boost early childhood development and reduce educational inequalities. But socioeconomic and cultural barriers can hinder the efficacy of such interventions, and recent impact evaluations question their value. This column looks at a large-scale experiment that provided parents of pre-schoolers with books as well as materials on the benefits of shared reading. It finds that the accessibility of the information provided played a key role in the intervention’s success. 

Caglio, Laffitte, Masciandaro, Ottaviano, 19 December 2019

One of the most important challenges of globalisation is to adapt regulations to new conditions imposed by global competition. This column argues that the introduction by UEFA of its Financial Fair Play regulations, with their break-even requirements for European football clubs, represents an exemplary case of how a change of accounting measurement rules motivated by international competition in the sports entertainment industry can shape businesses’ decisions by redefining their preferences and incentives towards better economic performance.

Auerbach, Gorodnichenko, Murphy, 18 December 2019

Despite decades of research, there still is no consensus over whether neoclassical, New Keynesian, or other frameworks accurately capture the underlying sources and mechanisms of economic fluctuations. The column uses new empirical data on demand shocks to evaluate the predictions of these models for labour share, labour wedge, wage and price response, and multipliers. Each model tends to do well by some metrics but poorly by others.

Moretti, Steinwender, Van Reenen, 18 December 2019

Defence R&D is a major component of government-sponsored R&D in many developed economies, and the effect of defence R&D expenditures on private sector innovation and economic growth has been a hotly debated topic for many years. This column presents a systematic analysis across all OECD countries which suggests that a 10% increase in defence R&D results in a 4% increase in private R&D. It also reveals evidence of spillovers between countries, with increases in government-funded R&D in one country appearing to increase private R&D spending in the same industry in other countries.

Heider, Saidi, Schepens, 17 December 2019

In recent years, several central banks have steered policy rates into negative territory for the first time in their history. The novel nature of negative rates raises several questions about how monetary policy operates in such non-standard territory. This column summarises recent research that focuses on the impact of negative policy rates on bank credit supply and bank risk-taking in the euro area. The findings point to a crucial role for bank deposits in the transmission mechanism of negative rates.

Enikolopov, Makarin, Petrova, 17 December 2019

Social media has been labelled a ‘liberation technology’ that empowers ordinary citizens, makes politicians more accountable, and leads to faster democratisation in authoritarian countries. This column estimates the causal effect of social media on politics in a non-democratic environment, using the case of Russia during 2011–2012, a period with the largest wave of anti-government protests since the fall of the Soviet Union. It exploits quasi-random variation in the spread of VKontakte, the most popular social network in Russia, across cities and finds that VKontakte penetration affected both the incidence and the size of the demonstrations by reducing the costs of collective action. 

Le Barbanchon, Ubfal, Araya, 16 December 2019

The decision whether to take up paid work alongside academic study is a difficult trade-off that students all over the world face. The benefits of additional income and work experience must be weighed up against the loss of hours devoted to formal study. This column exploits data from a work-study programme in Uruguay to explore the impacts of part-time employment on academic attainment and future professional success. Such programmes can represent valuable human capital investments, but their details are crucial to ensuring long-run positive impacts for young people.

Hvide, Meling, 16 December 2019

Successfully predicting which startups will thrive has long bedevilled economists. Using data from procurement auctions in Norway, this column finds that temporary demand shocks have long-term effects: startups that win a procurement auction are 20% larger than the runners-up, even years after the contract work has ended. In terms of job creation and sales growth, winning a procurement auction seems to have much larger effects for startups than for mature firms, which suggests the potential value in public policies that promote startups’ participation in government procurement auctions.

Melitz, 15 December 2019

Why did the Lydians decide, in the 7th century B.C., to coin electrum? On the face of it, this alloy of gold and silver would seem a particularly poor choice for coinage since its natural gold content varies and is hard to gauge with precision. This column suggests that it is the very uncertainty of the value of electrum, and the close control that the Lydians had over its gold content in coin form, that were the keys to the benefit of its coinage. It also suggests that the subsequent decision by the Greeks to coin silver was driven by the government's plan to subsidise the lower denomination coins, perhaps in order to economise its own transaction costs in its budgetary affairs.

Rendahl, Freund, 14 December 2019

In recent years, some have claimed that banks create money ‘ex nihilo’. This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. In addition to bank solvency representing a constraint on private money creation, banks require access to liquid reserves in order to be able to engage in money creation. 

Lee, Larsen, Webb, Cuéllar, 14 December 2019

As artificial intelligence becomes more widespread and its performance improves, it will likely have significant long-term consequences for jobs, inequality, organisations, and competition. Regulation may be used to address its risks and possibilities, but little is known about how AI-related regulation might affect firm behaviour. This column examines the impact of actual and potential AI regulations on business managers through a randomised online survey experiment. It finds that exposure to information about regulation decreases managers’ reported intent to adopt AI technologies in their firm’s business processes.

Fougère, Barone, 13 December 2019

Language skills for preschoolers help them achieve more when they get to school, but some parents are better than others at helping their kids to develop these skills. Denis Fougère and Carlo Barone tell Tim Phillips about a successful experiment in Paris to help less-educated parents spend time reading with their children.

Roth, Jonung, 13 December 2019

On the 20th anniversary of the euro, this column traces public support for the single currency and public trust in the ECB. The crisis years slightly dented support for the euro while trust in the ECB fell sharply. The recovery increased support for the euro, but while trust in the ECB has also risen, it remains below its pre-crisis levels. Unemployment is the key factor driving public support for the euro as well as trust in the ECB. 

Bahar, 13 December 2019

A key influence on the location decisions of multinationals is thought to be the ‘knowledge–distance trade-off’ – how far apart headquarters are from foreign subsidiaries, and the impact this has on ease of communication between them on issues related to management, monitoring, coordination, troubleshooting, and so on. This column argues that it is differences in time zones as much as the transport costs related to physical distance that play an important role in this trade-off. Human interaction is vital for the transfer of tacit knowledge that underpins economic development.

Turrini, Zeugner, 13 December 2019

For net international investment position benchmarks to be effective measures of countries’ external positions, they must be developed beyond a one-size-for-all approach. This column presents two such country-specific benchmarks to identify investment levels that are (1) explained by a country’s demographics and key indicators, and (2) beyond the threshold of presenting significant external stability risk. The authors apply these benchmarks to 65 advanced and emerging economies and present key findings.

Kretschmer, Peukert, 12 December 2019

Artists and music labels have always had to negotiate with the platforms that provide their content to listeners. This column examines the ways that digital platforms, and YouTube in particular, have reshaped the music industry and finds that they fulfill an important promotional function. Because everyone can upload content to YouTube – unlike, say, to MTV – the promotional effect of free music availability outweighs the substitution effect. For artists, this makes any exposure valuable – even user-generated YouTube content promotes sales of the underlying song. 

Kaeseberg, 12 December 2019

The agendas and roadmaps for the future of digital policy in Europe have been debated extensively. This column proposes a menu of different policy instruments for the new European Commission in order to achieve this transformation. These include reforming the framework of the e-commerce Directive, regulating super-dominant digital platforms, facilitating data intermediaries as counter-balancing actors, facilitating the rise of European platforms, and pushing blockchain. 

Pastor, Veronesi, 12 December 2019

Economic anxiety and insecurity are often cited as drivers of populism, so why has populism emerged over the past few years in rich countries and in good times? This column, part of the Vox debate on the topic, argues that income inequality plays a role. When the economy is strong, everyone fares well but the rich fare especially well, fuelling inequality and resentment. Populism in the form of anti-globalisation may reduce everyone’s consumption, but it affects the rich disproportionately and thus appeals to many voters in richer countries. In poorer countries, however, voters are less willing to give up consumption for equality.

Agarwal, Lodefalk, Stenberg, Tang, Tano, Wang, 11 December 2019

Export credit guarantees turned 100 this year, yet they have been sparsely studied. This column examines the causal effects of export credit guarantees on firm performance. It concludes by considering whether the provision of guarantees should be rebalanced in favour of small and medium-sized enterprises and by calling for governments to urgently integrate all major countries into a regulated system for export credit guarantees.

Kramarz, Martin, Mejean, 11 December 2019

Economists continue to disagree about whether international trade exacerbates or diminishes volatility. This column presents firm-level evidence from French exporters and their European trading partners over 15 years to show that firm-level volatility increases individual-level and aggregate-level volatility. High concentration among buyers as well as suppliers can amplify these shocks.

Nikolov, Pasimeni, 11 December 2019

If properly designed, even a small fiscal capacity can maximise its stabilisation effect. The column studies the macroeconomic stabilisation provided by the federal budget in the US as an example for monetary unions. Corporate income tax, on the revenue side, and social security, on the spending side, are the two most effective items. The key is to collect revenues based on the income of the most mobile factor, and to provide support to the income of the least mobile factor. 

Burzyński, Deuster, Docquier, de Melo, 10 December 2019

There has been much discourse on how long-term climate change will affect human mobility over the course of the 21st century. This column estimates the long-term welfare and mobility responses to climate change. Depending on the scenario, climate change will force between 210 and 320 million people to move, mostly within their own countries. Massive international flows of climate refugees are unlikely, except under generalised and persistent conflicts. The poorest economies will be hardest hit, thus increasing global inequality and extreme poverty. 

Colantone, Stanig, 10 December 2019

Populist parties tend to share an anti-establishment stance and the claim to represent ordinary people versus the elites. This column, part of the Vox debate on populism, argues that despite these similarities, populist parties are fundamentally heterogeneous and the drivers of their support tend to be diverse. It also argues that the economy and culture should be seen as tightly interrelated rather than mutually exclusive explanations for the populist surge, and that rather than being a simple ‘protest vote’, the surge might reflect a new political cleavage resulting from the contraposition of winners and losers from structural economic changes.

Mehling, van Asselt, Das, Droege, 10 December 2019

The new European Commission is considering the introduction of a ‘carbon border tax’. This column argues that the current EU legal framework and earlier policy proposals for border carbon adjustments offer a good indication of what such a measure might look like. If certain substantive and procedural guidelines are observed, a ‘carbon border tax’ along these lines can work and pass legal muster, but some important questions remain. Without a concrete mandate in the EU emissions trading system allowance directive to elaborate a border carbon adjustment, new legislation or an amendment will be necessary. 

Henriques, Palma, 10 December 2019

The decline of countries such as Castile and Portugal, which first benefited from access to the New World, relative to their followers, especially England and the Netherlands, is often attributed to the quality of the Iberian countries’ institutions at the time Atlantic trade opened. This column questions this narrative by comparing Iberian and English institutional quality over time, considering the frequency and nature of parliamentary meetings, the frequency and intensity of extraordinary taxation and coin debasement, and real interest spreads for public debt. It finds no evidence that the political institutions of Iberia were worse until at least 1650.

Fischer, Groeger, Sauré, Yeşin, 09 December 2019

Global imbalances are at the core of today’s trade tensions, but official current account statistics may not be sufficient to assess the external positions of financially integrated economies. For instance, balance of payments accounting standards do not prescribe the recording of retained earnings on portfolio equity investment in the current account. This column argues that adjustments in income flows in equity investment therefore remain concealed in official current account statistics. In today’s financially integrated world with existing accounting standards, external adjustment mechanisms should be considered more broadly than just as an evolution of trade balance and exchange rate movements. 

Debrun, Ostry, Willems, Wyplosz, 09 December 2019

Knowing whether public debt is sustainable is as critical for economists analysing fiscal policy as for practitioners tasked with charting desirable policy paths. However, because sustainability is intimately related to the government’s ability to honour all its current and future obligations, it is purely forward-looking and assessing it amounts to making a prediction about an unknowable future. This column fleshes out three principles guiding the design and implementation of sound debt sustainability frameworks: relevance, simplicity and transparency.

Cummins, 08 December 2019

Sharp declines in the concentration of declared wealth occurred across Europe and the US during the 20th century. But the rich may have been hiding much of their wealth. This column introduces a new method to measure this hidden wealth, in any form. It finds that between 1920 and 1992, English elites concealed 20-32% of their wealth. Accounting for hidden wealth eliminates one-third of the observed decline of top 10% wealth share over the past century.

Brück, Cuesta, Gentilini, de Hoop, Lee, Peterman, 07 December 2019

Rigorous research in humanitarian emergencies is not only feasible but also necessary to determine what constitutes effective assistance in these settings. This column introduces a Special Issue of the Journal of Development Studies which demonstrates that research establishing causal effects is vital for the design of efficient and effective social protection in settings of fragility and displacement. 

Keywood, Baten, 07 December 2019

Due to their lower standards of living, Eastern and Central Eastern Europe are losing their young, well-educated and energetic population to the West. The scarcity of data that reach far enough back in time makes it challenging to explain the longstanding East–West differences. This column explores the relationship of economic development with human capital – specifically, elite numeracy – and violence. It concludes that the absence of violence played a significant role in economic development through elite numeracy formation.

Dijkstra, Poelman, Rodríguez-Pose, 07 December 2019

Support for Eurosceptic parties and the rise of populism threaten not only European integration, but peace and prosperity on the continent more broadly. Rather than attributing their rise to the individual characteristics of voters – such as age or income – this column takes a different approach. Using results from recent legislative elections to map the geography of EU discontent, it finds that purely geographical factors – chiefly, long-term economic and industrial decline – are the fundamental drivers of anti-European voting.

Boone, Revoltella, 06 December 2019

For the past two years, global growth outcomes and prospects have steadily deteriorated, while investment growth has collapsed. This is particularly the case in Europe. This column argues that reducing policy uncertainty, rethinking fiscal policy, and acting vigorously to address the challenges raised by digitalisation, climate change, and persistent inequalities all have the potential to reverse the current slippery trend and lift investment and living standards. 

Kopiec, 06 December 2019

Research shows that individual spending behaviour is heterogeneous across households and that it depends on characteristics such as income and wealth. Using Italian data, this column shows that household heterogeneity plays a crucial role in the propagation of fiscal expenditure shocks. Household inequality gives rise to a rich set of new channels that propagate government expenditures shocks through consumer spending, which are related to households’ balance sheets and monetary-fiscal interactions. The values of the fiscal multiplier diverge from those predicted by the standard macroeconomic framework and the difference is particularly large at the zero lower bound.

Kashiwagi, 06 December 2019

With more frequent and severe natural disasters, demand is growing for governments to support affected firms in their recovery. This column investigates the impact of subsidies after the Great East Japan Earthquake. It finds that capital subsidies were effective for the retail sector, but not in the manufacturing or other service sectors. The results suggest that the heterogeneity comes from variations in the degree of private support across sectors rather than variations in supply chain disruption.

Brülhart, 06 December 2019

Few countries tax their citizens' wealth annually, but Switzerland is one of them. Marius Brülhart tells Tim Phillips about a natural experiment in Switzerland's cantons that teaches us about how people would respond if more countries decided to tax wealth instead of income.

Bergeaud, Cette, Lecat, 05 December 2019

In most advanced economies, both real long-term interest rates and productivity growth have decreased since the early 1990s. The column demonstrates how a circular relationship links these two indicators. Until there is a technology shock, the relationship will converge to an equilibrium in which growth and interest rates are both low.

Tamura, 05 December 2019

An increasing number of goods and services employ AI-related technology. But for most consumers, determining which products use artificial intelligence remains a challenge. This column suggests that the spread of new technology may be delayed when information about it is difficult to communicate, and argues that standards governing artificial intelligence labelling can help to both educate consumers and promote the technology’s dissemination.

Slacalek, 05 December 2019

Many economic models assume that households have up-to-date information. This column relaxes this assumption to see how this affects consumption at the household and aggregate level. A model that assumes that households only occasionally update their information about macroeconomic quantities better fits the micro and macro data, and can explain the fact that consumption reacts little to the announcement of a fiscal stimulus but substantially to the actual receipt of a stimulus payment.

Aldasoro, Ferrara, Langfield, Liu, Ota, 04 December 2019

Macroprudential regulation is in vogue, but liquidity requirements are typically seen only as a microprudential tool. This column shows how a macroprudential approach to liquidity requirements could improve regulatory efficiency. By concentrating liquidity in systemically important banks, financial stability can be enhanced without increasing aggregate requirements.

Huang, Panizza, Varghese, 04 December 2019

Establishing the presence of a causal link from public debt to economic growth and investment has proved challenging. This column uses data for nearly 550,000 firms in 69 countries to show that government debt affects corporate investment by tightening the credit constraints faced by private firms. Higher levels of public debt increase the correlation between investment and cashflow for firms that are more likely to be credit constrained – i.e. unlisted, small, and young firms – but appear to have no effect on the correlation between cash and investment of listed, well-established, and large firms.

Adam, Weber, 04 December 2019

Consumer goods prices systematically depend on product age. This column analyses this dependence and shows that relative prices tend to fall during the product lifecycle. It uses insights from a sticky price framework to demonstrate how these price trends matter for aggregate inflation and the optimal inflation rate

Gros, Capolongo, 03 December 2019

The ECB is running out of options for addressing its twin problems of low inflation and negative interest rates, leading some, including outgoing President, Mario Draghi, to call on fiscal policy measures to be used. This column argues that a fiscal expansion would be ineffective in raising interest rates or inflation for any length of time. Not only would the effect be temporary, but the scale of expansion needed to effect any substantial change would be unfeasible. 

Somoza, Terracciano, 03 December 2019

Policymakers are concerned about the stability of private digital currencies and protecting the consumers who use them. This column, part of VoxEU debate on the future of digital money, proposes locking stablecoins into an ETF-like structure with restrictions on basket composition. Stablecoin providers would be functionally similar to ETF sponsors, and stablecoins would become a new vehicle for traditional fiat currencies. 

Buti, Jaeger, Pichelmann, 03 December 2019

A full understanding of the political economy roots of the major economic, social, and political divides that have emerged in our societies is essential to devise the right policy responses and to properly calibrate them in an environment of possibly protracted economic weakness. This column summarises the proceedings of DG ECFIN’s Annual Research Conference 2019, which zoomed in on some of the most pertinent challenges economic policymakers face today: (i) bringing productivity to people and places; (ii) making markets work for all, not just the few; (iii) future-proofing fiscal policies when going green and digital; and (iv) safeguarding Europe’s role in the global economy.

Furceri, Loungani, Ostry, 02 December 2019

Free trade has contributed to a ‘great convergence’ of emerging market countries toward incomes in industrialised nations in recent decades. It is less clear whether free mobility of capital across national boundaries has conferred similar benefits. This column presents evidence suggesting that the gains in average incomes have been – at best – small, while increases in income inequality and the decline in the labour share of income have been significant. Financial globalisation thus poses far more difficult equity-efficiency trade-offs than free trade and should be at the centre of debates about how to make globalisation inclusive.

Danielsson, Macrae, 02 December 2019

Financial institutions are increasingly outsourcing information technology to the cloud, motivated by efficiency, security, and cost. This column argues that the consequence is likely to be short- and medium-term stability at the cost of the increased likelihood of catastrophic systemic events. Cloud providers are systemically important and should be regulated as such.

Branstetter, Kovak, Mauro, Venâncio, 01 December 2019

China’s rise as an export powerhouse has affected labour markets across the Western world, but the effects appear to differ dramatically across countries. This column evaluates the impact of rising Chinese exports on Portuguese employment, finding that labour market effects are shaped by indirect competition and labour market regulation.

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