November 2020

Ilzetzki, Moll, 25 November 2020

On 5 November, the UK entered its second lockdown in an attempt to contain the spread of Covid-19. This column reports on the latest CfM survey, in which the majority of the panel of assessed that lockdowns have caused limited economic damage beyond what the pandemic itself would have caused unabated, and that the economic costs of the current lockdown are limited relative to the milder measures employed this summer. Nearly a fifth of the panel believes that the UK economy is in fact better off due to lockdowns, beyond the public health benefits of these measures. About a third of respondents believes that no trade-off exists between lives and livelihoods and that health and economic outcomes in fact go hand in hand, especially when better policies are taken into account, a third believes there is a small trade-off, and the remaining third that the trade-off is larger.

Hoekman, Shingal, Eknath, Ereshchenko, 25 November 2020

A prominent feature of the public policy response to COVID-19 has been the active use of trade policy instruments to enable access to essential supplies. This column finds the use of export restrictions targeting medical products to be strongly positively correlated with characteristics of prevailing public procurement regimes. Membership of trade agreements encompassing public procurement disciplines is associated with actions to facilitate trade in medical products. These findings suggest that future empirical assessments of trade policy drivers during the pandemic should consider the role of national public procurement systems and deep trade agreements.

Luyten, Kessels, Tubeuf, 25 November 2020

With the news of promising Covid-19 vaccines on the horizon comes a new challenge. The initial supply will not be sufficient to vaccinate everyone and choices will need to made over distribution. This column presents the results of an experiment in Belgium investigating people’s preferences regarding the distribution of a scarce vaccine. There was no one single strategy that was considered best by a large majority, but three strategies were ranked first by between 20-30% of respondents: prioritising essential workers, the chronically ill, and older people. Libertarian-inspired approaches (such as highest willingness-to-pay or ‘first-come, first served’) and a strict egalitarian approach (such as a lottery) were clearly the least preferred options.

Makris, Toxvaerd, 24 November 2020

The prospect of an effective vaccine to Covid-19 in the near term makes it important to understand private and public incentives to suppress infection. This column examines how the prospect of a vaccine alters individuals’ incentives to self-protect between now and the arrival of the vaccine, and how a benevolent social planner would prefer individuals to self-protect. It finds that individuals tend to ramp up self-protection in anticipation of the vaccine, while the social planner manages the transition by introducing stricter suppression at early stages.

Bryson, Corsini, Martelli, 24 November 2020

Public spending on education in Italy has been falling for many years, limiting the hiring of new permanent teachers and thus raising the average age of teachers in the country. This column considers the effect of allocating permanent teacher contracts to older teachers on student performance in upper-secondary schools in Tuscany. The findings suggest that a higher proportion of older teachers in a school has a negative effect on student performance. The government may need to do more to recruit younger cohorts of teachers into permanent posts, preferably through periodic intakes.

Hupkau, Petrongolo, 23 November 2020

A growing body of research is making clear the unequal impact of the COVID-19 pandemic across gender. This column explores what the likely implications of a second lockdown in the UK are for gender equality at work and in the home. While previous school closures in the first lockdown may have led to positive changes in the organisation of the home in terms of men and women sharing childcare responsibilities, women nevertheless are disproportionately affected by this lockdown, experiencing greater job loss rates and taking on more of the responsibilities at home.

Schlögl, Schmidt, 23 November 2020

With its increasing ambition, the conceptual deficiencies of the European climate policy are becoming even more transparent – especially its neglect of the systemic nature of the energy system. This column highlights three key elements of a more promising approach to European climate policy: (i) establishing a uniform carbon price as its central policy element, (ii) ending the confusion of objectives and instruments, and (iii) dropping its naiveté about the repercussions of its own actions on global climate protection. Addressing these issues will be crucial to making the European Green Deal work effectively.

Gruber, Kanninen, Ravaska, 22 November 2020

Fiscal sustainability challenges have prompted governments to restructure public pension systems, including the focal retirement ages. This column shows that relabelling ‘early’ and ‘normal’ retirement ages in a 2005 reform in Finland changed people’s retirement rate. Such relabelling allows policymakers to shape retirement behaviour with little fiscal cost. However, there is a marginal increase in regret among those who responded to the change in retirement ages, suggesting a potential source of welfare loss from inducing excess retirement.

Barba Navaretti, Calzolari, Pozzolo, 22 November 2020

The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe.

Albers, Jerven, Suesse, 22 November 2020

Why do large differences in tax revenues between states exist and persist? This column introduces a comprehensive new dataset of tax and revenue collection for all African polities from 1900 to 2015 to answer this central question. The results confirm the importance of democratic institutions and political stability, while de-emphasising the role of resource revenues. Overall, states in Africa have been able to build institutions for the collection of ‘hard’ taxes when the preconditions were favourable, especially when access to external finance was limited. These insights add important nuance to established theories of state-building in developing countries.

Breinlich, Fadinger, Nocke, Schutz, 21 November 2020

Much of world trade is dominated by a small number of large firms. Market power becomes problematic for the estimation of gravity equations because many policy interventions also influence market shares and hence prices and the value of trade flows. This column proposes a method to correct the resulting inaccuracies in gravity equation estimation by adjusting trade flows for market power effects by subtracting a correction term that depends on the market share a firm or country has in the market in question. It finds membership in the euro area increases bilateral trade flows by around 48% before correcting for market power, and 58% after correction.

de la Escosura, Rosés, 21 November 2020

The current productivity slowdown in advanced economies has triggered a lively debate about its causes and remedies. This column takes a long-run perspective to study drivers of productivity expansion and stagnation in Spain during the last 170 years. It finds that the productivity slowdown coincided with resource reallocation towards sectors attracting less innovation, with low investment in intangibles and low investment-specific technical change. Obstacles to competition in product and factor markets, subsidies, and cronyism further contributed to capital misallocation, negatively affecting productivity growth.

Handel, Kolstad, Minten, Spinnewijn, 21 November 2020

Public policies that offer choices to consumers are on the rise. But it is not clear that everyone benefits equally from these choices. This column presents new evidence using data on health insurance choices in the Netherlands. It finds that markedly worse choices were made by individuals with lower education levels, in less analytical professions, and with little exposure to high-quality choices made by peers. This new dimension of inequality calls for policies that genuinely improve consumers’ choices or cease offering them altogether.

Conesa Martínez, Lotti, Powell, 20 November 2020

Global banks are highly connected, and banking systems are only as strong as the weakest links in the network. This column analyses cross-border syndicated lending to emerging and developing countries from 1993 to 2020 and finds evidence of both resilience and fragility in the global financial system. Contagion through co-lenders affected bank lending more strongly before and during the 2008-09 financial crisis but significantly less in a period after the crisis, consistent with the idea that the reduction in network density as a result of the crisis may have increased resilience to ‘normal shocks’. But Covid-19 is clearly no normal shock, and its impacts are likely spreading through the network, affecting the supply of loans to emerging economies.

Javorcik, Kett, Stapleton, O'Kane, 20 November 2020

The Brexit referendum created the threat of a trade policy reversal on an unprecedented scale, with the potential ‘unravelling’ of decades’ worth of deep integration between the UK and the world's most integrated trading bloc. This column examines how this affected UK labour demand. It finds that UK regions exposed to the threat of future barriers on professional services exports experienced a substantial decline in the posting of online job adverts after the Brexit vote, relative to less exposed regions. A back-of-the-envelope calculation indicates that this resulted in approximately 1.5 million fewer job adverts posted after the vote than might have occurred otherwise. 

Cornelli, Frost, Gambacorta, Rau, Wardrop, Ziegler, 20 November 2020

Credit markets around the world are undergoing a transformation. Fintech and big tech firms are providing more lending to households and small businesses. Using a new database, this column estimates that fintech credit flows reached $223 billion in 2019, while big tech credit reached $572 billion. Both forms of credit are larger where there is greater (unmet) demand for credit and where economic and institutional factors favour the supply of such lending. The Covid-19 pandemic represents an important test for these new business models.

Valencia Caicedo, 20 November 2020

Laotians are still suffering collateral damage from a covert war that the US waged in the country half a century ago. Felipe Valencia Caicedo tells Tim Phillips about the devastating impact of the bombing of Laos, and how we can help victims of conflict in future.

Adena, Enikolopov, Petrova, Voth, 19 November 2020

In conflicts, adversaries aim for victory by using both direct and indirect forces to break the enemy’s will to resist. During WWII, Allied forces used strategic bombing and radio propaganda to undermine German morale. This column compares German domestic resistance to the Nazi regime, based on treason trial records, with the monthly volume of bombing and the locations of BBC radio transmitters. Where radio reception was better and Allied air forces bombed more heavily, German domestic resistance was markedly more likely, despite the draconian punishments for even the mildest transgressions.

Konečný, Pfeifer, 19 November 2020

The financial sector has an essential role to play in addressing the economic fallout from the Covid-19 pandemic. This column discusses the link between financial stability and restrictions on the mobility of capital along national borders of cross-border banking groups in the context of macroprudential capital buffers. It argues that apart from the direct absorption of systemic shocks, such macroprudential policies also enhance the performance of existing risk-sharing mechanisms, in particular in the case of synchronous shocks in the EU. The ESRB recommendation for restrictions of distributions during the pandemic contributes to the stabilising role of macroprudential capital buffers in the EU.

Hamermesh, 19 November 2020

The Covid-19 pandemic has changed not only how people spend time, but with whom they spend it. Partnered people may be spending more time with a spouse or cohabitor while singles spend more time alone. This column investigates how these changes in time allocation might affect individual feelings of wellbeing. Time diaries from the US and the UK suggest that married couples compelled to spend more time together may experience increased happiness, while the crisis could take an emotional toll on unmarried individuals forced to spend more time alone.

Bozio, Garbinti, Goupille-Lebret, Guillot, Piketty, 18 November 2020

How much can redistribution policies account for long-run changes in inequality? This column reveals that the reduction of inequality implied by redistribution is significant in France and the US and increased throughout the entire 20th century, but pre-tax income inequality appears to be the main factor accounting for the differential levels and trends in the two countries. These findings suggest that policy discussions on inequality should pay more attention to policies affecting pre-tax inequality and should not focus exclusively on redistribution.

Betcherman, Testaverde, 18 November 2020

The Covid-19 crisis has profoundly affected employment everywhere, but countries have adopted different strategies to try to mitigate the worst of the effects. This column compares the Greek experience to the rest of Europe, as well as to North America. The authors conclude that given the nature of the pandemic, models for managing labour market shocks will need to offer extended support where the shock persists or reoccurs. Crucially, successful policy approaches will need to be well suited for enabling job creation once conditions are in place for a restart.

Willems, 17 November 2020

The COVID-induced surge in public debt has raised concerns about its sustainability, further increasing the need to improve the debt-restructuring process. This column proposes an auction-based strategy to restructure sovereign debt that tailors the shape of the restructured debt stock optimally to creditor preferences, subject to debt being sustainable post-restructuring. Any debt relief provided to the country gets optimally distributed over its creditors, thus minimising the pain inflicted upon them. A version of the winner’s curse can reduce the ‘holdout problem’ of creditors trying to free-ride on each other’s contributions towards debt relief. All this should smoothen the restructuring process and enable the debtor to mobilise greater creditor support (given the amount of relief provided). 

Bats, Giuliodori, Houben, 17 November 2020

Interest rates have declined steadily over the last decades, recently turning negative in Europe and Japan. This column finds that negative interest rates have important implications for bank stock prices. When market interest rates are negative, but deposit rates are stuck at zero, monetary policy instruments that target the longer end of the yield curve are less detrimental to bank performance compared with instruments that target the shorter end. Therefore, quantitative easing and yield curve control deserve special consideration when interest rates are negative and further monetary accommodation is required. 

Combes, Duranton, Gobillon, Gorin, Zylberberg, 17 November 2020

Applying machine learning to rich historical data sources provides the opportunity to draw novel insights for fields such as urban and spatial economics. Using evidence from France, this column shows how such information might be derived from historical maps to shed new light on the growth of towns and agglomerations, and could inform our understanding of various human behaviours from community evolution to agricultural productivity.

Evenett, Fritz, 17 November 2020

The onset of the COVID-19 pandemic meant governments faced their second systemic economic crisis in under 15 years. This column introduces the latest Global Trade Alert report, which documents the extensive cross-border spillovers created by government policy intervention during the first ten months of the year, much of it in response to the pandemic. The evidence challenges five common claims made by officials during crises and questions the current approach to crisis management found in WTO accords.

Plümper, Neumayer, 16 November 2020

What role did the summer holiday season play in increasing Covid-19 infections in Germany? Exploiting the staggered nature of school holidays in Germany, this column estimates the effect of school holidays on growth in infections across the country Germany. It finds that the estimated effect equates to 48.7% of the average growth rate across German districts during their respective final week of holidays. While this is similar to previous aggregate findings, the findings also reveal how the effect differs across the 16 federal states and is conditioned by how rich a district is and by the share of foreigners amongst its resident population.

Caselli, Grigoli, Lian, Sandri, 16 November 2020

Non-pharmaceutical interventions remain key to slow the spread of the COVID-19 pandemic. This column examines the impact of lockdowns on mobility in a large number of countries during the first seven months of the pandemic. Both lockdowns and voluntary social distancing helped contain the first wave of COVID-19. In particular, stringent and rapidly adopted lockdowns significantly slowed the spread of the virus. Despite their short-term economic costs, early and tight lockdowns may pave the way to a faster recovery.

Aksoy, Eichengreen, Saka, 16 November 2020

Last week brought welcome news about the apparent effectiveness of a potential Covid-19 vaccine. While the challenges of manufacturing and distributing the vaccine lie ahead, this column argues that the most difficult challenge may actually be getting people to take it. A September survey of more than 10,000 Americans showed that only a slim majority of adult respondents would definitely or probably get a vaccine to prevent Covid-19, were it available today. A 2018 study shows that vaccine scepticism is even greater in a number of other countries. Hope lies in the possibility of a more consistent and effective public policy response, in which governments’ non-pharmaceutical interventions produce positive results, in turn fostering confidence in the safety and efficacy of any vaccine they endorse and distribute. 

Ilzetzki, 16 November 2020

The ECB is in the process of reviewing its monetary policy strategy. This column presents the latest CfM-CEPR survey, which reveals that a majority of panel members support allowing inflation to exceed 2% following periods when inflation has been below target and making more explicit its secondary objective of supporting economic growth and full employment. Only a minority support increasing the inflation target itself. 

Gans, 15 November 2020

Paul Milgrom has been jointly awarded the 2020 Nobel Prize in Economic Sciences with Robert Wilson “for improvements to auction theory and invention of new auction formats”. This column outlines his key contributions in this area, which explain why when the US government wanted to run the largest auction in history in the early 1990s, there was a ring on his doorbell – and why his doorbell rang again in October this year, this time by his fellow laureate.

Grewenig, Lergetporer, Werner, Woessmann, Zierow, 15 November 2020

A key feature of school closures is that there is no trained educator in the room to help. This column argues that low-achieving students are particularly affected by the lack of teacher support. Based on a German time-use survey, it finds that students on average reduced daily learning time by about half during the school closures. This reduction was significantly larger for low-achieving students, who disproportionately replaced learning time with activities deemed detrimental to child development such as computer gaming rather than with more conducive activities such as reading. 

Daehler, Aizenman, Jinjarak, 15 November 2020

Covid-19 was predicted to hit emerging markets particularly hard, as many containment measures were deemed less effective in an emerging market context. This column examines emerging market sovereign credit default swaps spreads during the pandemic and assesses the relative importance of global factors, sovereign fundamentals, COVID-19 mortality, and policy responses. The analysis suggests that while emerging market sovereign CDS spreads can be explained by regional and global risk factor before COVID-19, they were driven by fiscal space, commodity revenues and mobility dynamics during the pandemic, but not directly through variation in country-specific COVID-19 mortality rates.

Arriola, Kowalski, van Tongeren, 15 November 2020

The Covid-19 pandemic has left in its wake a global economy damaged beyond what was thought possible a decade ago. The globalised nature of the 21st century global economy is a key component in terms of the dynamics, and effects, of the virus. This column presents an analysis of the importance of global value chains, both during the pandemic and throughout the recovery process. The results of the study suggest that increased localisation could do more harm than good, and that the international network of interconnected supply chains remains key to producing essential goods and services.

Myers, Puller, West, 15 November 2020

Improving energy efficiency can reduce carbon emissions, thereby aiding the fight against climate change. One target of energy efficiency efforts is individual homes, from insulation and air duct sealing to heating and cooling systems. This column finds that a significant share of homeowners in the US city of Austin, Texas, were unaware of their homes’ relative energy efficiency. The authors suggest that mandatory energy audit and disclosure programmes would provide sellers and buyers with information that could affect housing prices and encourage investments in energy efficiency. 

Eichenbaum, Godinho de Matos, Lima, Rebelo, Trabandt, 14 November 2020

A central question in economics is how people respond to risk – specifically, how they respond to low-probability events. This column uses the COVID-19 pandemic as a natural experiment to answer this question. Studying the consumption behaviour of Portuguese public sector workers, whose income was likely unaffected by the crisis, they find that older workers reduced their consumption of high-contact goods by much more than younger workers.  As the likelihood for dying from COVID-19 is increasing in age, these results suggest that workers’ responses are commensurate with the risk they face.

Muñoz, 14 November 2020

Institutional real estate investment has more than quadrupled in the euro area since 2013, financed largely through non-bank lending, which is not subject to regulatory loan-to-value limits. This column uses a two-sector model of institutional real estate investors calibrated to quarterly data from the euro area economy to show that optimised (countercyclical) loan-to-value rules limiting the borrowing capacity of such investors are more effective in smoothing property price, credit, and business cycles than the well investigated dynamic loan-to-value rules that affect (indebted) households’ borrowing limit. The findings call for a strengthening of the macroprudential regulatory framework for non-banks.

Kehrig, Vincent, 14 November 2020

A decline in the labour share of income has been documented in many countries and industries. This column uses data from US manufacturing establishments to analyse the drivers of this phenomenon. It shows that the massive reallocation of economic activity was driven by establishments that lowered their labour share as they grew in size. Yet, these low labour shares are temporary, making establishments more akin to ‘shooting stars’ than ‘superstars’. Coupled with the fact that their status is associated with higher prices, the evidence points to a significant role for demand-side forces, such as product innovation or brand power. 

Deza, Maclean, Solomon, 14 November 2020

The correlation between mental illness and crime has been widely documented. In general, individuals with poor mental health are more likely to be involved with crime, either as an offender or as a victim, compared to other individuals. This column presents evidence from the US, arguing that policies that grant support to mental healthcare may have long-term positive effects on crime rates. Since crime is a complex outcome, a flexible and varied policy response is essential to tackling the issue.

Alsan, Braghieri, Eichmeyer, Kim, Stantcheva, Yang, 13 November 2020

The COVID-19 pandemic offers an example of how two core government functions – the protection of civil liberties and the provision of public goods – can come into conflict. This column reports on a large-scale representative survey administered to more than 400,000 people in 15 countries which shows that a large fraction of people around the world are willing to sacrifice their own rights and freedoms in order to improve public health conditions during the COVID-19 pandemic. Citizens’ support, however, is likely to be heterogeneous and depends on their own exposure to COVID-19 health risk, as well as on how much they fear the erosion of their civil liberties.

Saka, Ji, De Grauwe, 13 November 2020

Financial crises invariably lead governments to intervene in one way or another, whether to ease the damage to middle-class voters, to respond to the anti-finance sentiment, or to introduce new policies favouring the financial industry. This column traces policy interventions back to policymakers’ incentives. Financial crises lead governments to re-regulate financial markets only in democratic settings. Politicians who are facing a term limit are substantially more likely to re-regulate financial markets after crises in ways compatible with their private incentives. These privately motivated interventions operate via controversial policy domains and favour incumbent banks in countries with more revolving doors between political and financial institutions.

Monnet, 13 November 2020

When we compare ratios of debt to GDP, do we look closely enough at the political and financial context in which the debts were calculated? Eric Monnet of the Paris School of Economics tells Tim Phillips about how our statistical methods and assumptions have evolved.

You can find Eric's CEPR Discussion Paper on this subject here
And his chapter, The History and Politics of Public Debt Accounting in the recent book A World of Public Debts: A Political History, here

Bhalotra, 13 November 2020

There has been a global surge in domestic violence since the onset of Covid-19. This column provides insights into what may be driving this rise, drawing on evidence from Brazil. Job loss leads to increases in domestic violence, irrespective of whether it is the perpetrator or victim whose job is lost. Both income stress and an increase in time spent together seem to contribute to this. Unemployment benefits have mitigation potential if they can be supplemented by policies designed to encourage a return to work. 

Straeter, Exton, 13 November 2020

Sharing is an ancient, universal practice in which people grant others temporary access to their possessions. This column questions whether a ‘sharing economy’ would be sustainable in practice. Online experiments involving over 400 adults in the US revealed that products shared with other people are disposed of earlier, irrespective of the frequency of use. Though consumer-to-consumer sharing has immediate environmental benefits through, for example, decreases in the use of raw production materials, its long-term benefits appear limited.   

Gros, 12 November 2020

In the autumn of 2020, many European governments are imposing ‘lockdowns light’, which usually contain limitations on the operations of restaurants, bars, and some shops considered non-essential.  This column argues that pandemic control cannot be limited to lockdowns. Activities like providing restaurant meals or retailing increase the risk of infection and thus involve a large difference between private and social cost.  The efficient solution to this problem would be incentives for shop and restaurant closures, rather than mandated lockdowns.

Drzeniek, Tambourgi, Marchese, 12 November 2020

COVID-19 is accelerating structural transformations, notably towards more digitalised and more automated economies. This column presents a COVID-19 economic recovery index which considers the extent to which a country is exposed to major health effects from COVID-19, the degree to which a country’s economy will be affected by the crisis, and a country’s capacity to recover and rebuild to pre-COVID-19 levels. To guide their economies out of this crisis and to ready them for the coming transformation, governments need to restore trade flows, manage the risks of slowing global economic convergence, and actively prepare for accelerating economic transformation.

Fuchs-Schündeln, Krueger, Ludwig, Popova, 12 November 2020

According to the World Bank, around 1.6 billion school children were affected by Covid-related school and childcare centre closures at their peak. This column uses a model that features public schooling as an input into the human capital production of children, as well as the monetary and time investment of parents into their children. The results suggest that school and childcare closures have significant negative long-term consequences on the human capital and welfare of the affected children, especially those from disadvantaged socioeconomic backgrounds. The loss in schooling and associated human capital accumulation is harder to offset the longer the crisis lasts.

Krahnen, Langenbucher, Leuz, Pelizzon, 12 November 2020

The Wirecard scandal raises many questions about the effectiveness of market and institutional oversight. Several mechanisms against corporate fraud and deception have failed in some respects. This column discusses important implications of the scandal and make eight suggestions for the market and institutional oversight architecture in Germany and in Europe.

Freeman, Blanchflower, Bryson, 11 November 2020

Things have been going badly for workers, but for many years their traditional representatives in the workplace – trade unions – have been on the back-foot.  This column revisits the association between unionisation and job satisfaction, and finds that while in the past union workers used to have lower job satisfaction than their non-union counterparts, union membership now raises wellbeing at work. The study suggests that unions do the same as they always did – it is the non-union world that has changed for the worse.  There is evidence of this sparking a growth in unionisation in the UK over the last three years.   

De Santis, Van der Veken, 11 November 2020

Understanding the economic impacts of a global pandemic is a key challenge for the economics profession. This column analyses the 1918-1920 Spanish flu to gain insights about the expected output losses and downside risks from such an event. It estimates an average output drop of 7% across the globe over the years 1918-1920, increased macroeconomic risks, and an increase in income inequality across countries. The expected real income loss is nearly twice as large for lower-income countries. As for the US, the estimated output fall due to the Spanish flu is small, but the macroeconomic risks are not negligible.

McCann, O'Malley, 11 November 2020

Debt moratoria introduced to mitigate the initial impact of the coronavirus pandemic have begun to expire. This column derives lessons for policymakers by analysing detailed micro data on arrears resolution during the recovery from the post-2008 Irish financial crisis.  It highlights trends in borrower engagement in resolution, the financial health of households engaging, details on how loans were restructured, and the success of loan restructures. 

Evenett, Baldwin, 10 November 2020

While the trade system as a whole has proved more resilient than many feared during the Covid-19 pandemic, the crisis has placed new stresses on multilateral cooperation. This has come at a time when the standing of the WTO has fallen in some of its largest members and its rules have been ignored by many. This column argues that with the election of a new US government and the concurrent selection of a new WTO Director-General, there is new hope for a revitalisation of multilateral cooperation on trade. A new eBook presents analyses and ideas of how this could be done.

Dahl, Rooth, Stenberg, 10 November 2020

In many countries, secondary school students choose between academic fields without knowing what impact their choice will have on future earnings. This column argues that information on field-specific earnings premiums could not only help students to plan for their future, but could also help policymakers to allocate education resources. Taking advantage of the distinctive admissions system in Sweden’s secondary schools, the authors find that earnings payoffs for engineering, natural science, and business are generally positive, while the returns to social science and humanities are mostly negative.

Edwards, 10 November 2020

While today almost every advanced nation has a flexible exchange rate regime similar to that advocated by Milton Friedman, most emerging countries continue to have ‘conventional peg’. This column draws on the historical work of Milton Friedman to examine the conditions under which he thought that flexible rates were the right system for developing countries, and when he thought that it was appropriate to have an alternative regime. 

Baltrunaite, Karmaziene, 10 November 2020

There is little evidence of how the supply side of potential candidates affects board appointments in private firms. This column exploits the gradual introduction of high-speed and high-comfort train services in Italy to examine whether access to a larger pool of talent improves the match between a firm and its directors. Easier access to non-local directors increases positive assortative matching between directors and firms – high-quality firms improve their boards’ quality, while low-quality firms reduce the quality. Moreover, director quality is positively associated with firm growth and productivity, and negatively associated with the probability of default.

Engzell, Frey, Verhagen, 09 November 2020

School closures have been a common tool in the battle against COVID-19. Yet, their costs and benefits remain largely unknown. This column estimates the ‘learning loss’ that occurred when Dutch schools closed for eight weeks, using national exams that took place just before and after lockdown and similar data from previous years. On average, students lost out on a fifth of a year’s worth of learning. Losses were especially marked among those from disadvantaged homes.

Furlanetto, Robstad, Ulvedal, Lepetit, 09 November 2020

Modern macroeconomic models imply that demand factors have only a small transitory effect, if any, on the productive capacity of the economy. By extending the econometric framework proposed by Blanchard and Quah, this column enables fluctuations in aggregate demand to have a long-run impact on the productive capacity through hysteresis effects. It finds that these demand shocks are quantitatively important in the US, in particular if the Great Recession is included in the sample. More specifically, demand-driven recessions lead to a persistent decline in employment and investment but leave labour productivity largely unaffected.

Bastani, Waldenström, 09 November 2020

How should capital be taxed in advanced economies? This column presents a survey of the recent literature on optimal capital taxation and empirical studies on the distortionary effects of capital taxes. It provides specific analyses for taxes on wealth, property, inheritance, personal capital income, and corporate profits. Its overall conclusion is that capital taxation is part of an optimal tax system, but not all capital taxes strike a balance between optimality and administrative feasibility.

Jakucionyte, Singh, 09 November 2020

Mortgage markets are dynamic in nature, which sometimes comes at a cost. This column shows that over the last few decades, the US mortgage market experienced a secular decline in co-borrowers. Having a co-borrower minimises the exposure and effects of adverse income shocks and thus should enhance mortgage performance. The authors show that this yet unexplored decline in co-borrowers therefore has non-trivial implications for the financial stability of the mortgage market and regional economic outcomes. 

Manelici, Pantea, 08 November 2020

Industrial policies can be an effective tool for governments to shape the development of different sectors to achieve productivity growth. But there is little evidence of their effectiveness or efficiency. This column examines the impact of an income tax break for IT workers in Romania. The findings suggest that targeted policies of this kind can boost key sectors. This finding is encouraging in terms of the ability of governments to design and implement effective industrial policies. 

Cahuc, Carcillo, Patault, Moreau, 08 November 2020

Businesses often worry about unpredictable outcomes and an alleged pro-worker bias among judges when they go to labour courts. This column uses information from around 145,000 decisions made by French appeals courts over the period 2006-2016 to examine the impact of labour court judge bias on the economic performance of firms. The findings suggest that some judges are more pro-worker than others, and that this bias matters for small, low-performing firms, but not for other firms.

Galasso, Pons, Profeta, 07 November 2020

The efficacy of government lockdown measures to contain COVID-19 hinges on people’s willingness to comply. It is critical to identify and convince those who are the least compliant. This column surveyed over 21,000 respondents in eight OECD countries, in March and April 2020, on beliefs about COVID-19 and containment measures and their level of compliance with the measures. Men and women differ strikingly in both beliefs and behaviours, with women are more likely to take the pandemic seriously and more compliant than men. The findings suggest that public health communication should target men and women differently.

Danisewicz, Ongena, 07 November 2020

Entrepreneurship is a key driver of economic activity, so entrepreneurial activity is one of the central points of focus for policymakers and academics. Using information on fiscal transfers in Poland, this column documents beneficial effects of local government funding as a mechanism to alleviate entrepreneurial constraints and spur firm formation. In addition, the observed impact of transfers is stronger in regions with higher political competition and accountability, and in regions with more positive historical attitudes toward entrepreneurial activity. 

De Nardi, Fella, Knoef, Paz-Pardo, van Ooijen, 06 November 2020

Understanding the source of fluctuations in earnings, and how workers insure themselves against those fluctuations, is key to evaluating labour laws. This column uses administrative data from the Netherlands to compare the role played by households to the tax and transfer system in mitigating shocks to individual earnings. It then compares those findings to data from the US – a country with a substantially smaller welfare state – and finds that hours, not wages, account for most of the variability in earnings for workers in the bottom two deciles of the earnings distribution.

Schankerman, Schuett, 06 November 2020

In the last years, there has been substantial pushback against the patent system. Critics claim that patent rights are becoming an impediment to innovation, and an instrument to extract rents through patent litigation. This column develops a framework to quantitatively assess the effectiveness of the current US patent system and the welfare impact of reforms. It finds that the current system generates positive social value, and that the recent introduction of the Patent Trial and Appeal Board increased welfare. Intensifying patent office examination and imposing antitrust limits on patent licensing agreements would yield additional welfare gains.

Verwey, Felke, Bardone, 06 November 2020

The Autumn 2020 European Economic Forecast remains dominated by the pandemic. The exceptionally strong rebound experienced in the third quarter is being put on hold as national authorities introduce new public health measures to stem the resurgence of the virus. The projected return to the recovery in 2021 and its speed are subject to extremely high uncertainty. The economic impact of the pandemic is set to continue differing widely across the EU. In these circumstances, a rapid approval and speedy implementation of Next Generation EU is crucial.   

Herrera, Konradt, Ordoñez, Trebesch, 06 November 2020

The Covid-19 pandemic has had major political consequences. The balancing act of curbing the spread of the virus and re-opening the economy has been a particularly high-profile challenge for policymakers in recent months. This column explore the political costs of (mis-)managing the pandemic. The findings suggest that governments are punished in terms of political approval when Covid-19 infections accelerate, particularly in the absence of effective lockdown measures. Economic indicators, in contrast, do not appear to be strong predictor of political approval rates during this crisis. 

Blanchard, 06 November 2020

The EU's increasingly complex system of fiscal rules should be replaced by a system of fiscal standards instead, Olivier Blanchard tells Tim Phillips.

You can watch the recording of Olivier presenting his paper on Fiscal Standards for Europe at the 72nd Economic Policy Journal Panel Meeting here

The full paper, Redesigning the EU Fiscal Rules: From Rules to Standards by Olivier Blanchard, Alvaro Leandro and Jeromin Zettelmeyer, can be downloaded here

Lamy, 06 November 2020

The Access to COVID-19 Tools Accelerator – a collaboration between WHO, the French president, the European Commission, the Gates Foundation and other countries – was launched in April 2020 to accelerate the development and production of, and equitable access to, COVID-19 tests, treatments, and vaccines. In this column, Pascal Lamy argues that while efforts are underway to mobilise public and private grant contributions to fund the initiative, it is unlikely that they will raise the amounts required to deal with the most urgent needs. Innovative ways of financing, which are already available for other aid programmes, will also be needed to ensure that the populations of the world’s poorer countries are not deprived of access to vaccines within a few months.

Kunz, Propper, 05 November 2020

The COVID-19 pandemic has spread quickly and extensively around the globe and left behind many fatalities. This column reports on research which examines the association between county-level death rates and the quality of hospital care residents of those counties had access to in the first five months of the pandemic in the US. It finds that death rates were lower in counties where quality of hospital care, particularly for respiratory disease, was higher. But counties with high shares of minority populations did not appear to benefit from higher hospital quality.

Bosio, Djankov, Glaeser, Shleifer, 05 November 2020

Discretion in public procurement allows public officials to pursue socially and economically optimal procurement outcomes, but it also increases the possibility of corruption. This leads to a trade-off between allowing greater discretion and preventing corruption in public procurement. Using survey data on public procurement law and practices from 187 countries in 2019, this column investigates this trade-off. It finds that regulation is helpful when government efficiency is low, and harmful when it is high.

Johnston, Kung, Shields, 05 November 2020

Building individual resilience is an important policy priority in many countries. This involves maintaining healthy levels of psychological and physical functioning in the presence of adverse events. This column documents the dramatic impact of the Covid-19 crisis on psychological distress in the UK. It shows neither financial resources nor religiosity, neighbourhood social capital, or cognitive skills were associated with a more resilient response to the crisis. In contrast, it finds that the non-cognitive skill ‘self-efficacy’ has been a strong predictor of resilience during the pandemic.

Eckardt, Kappner, Wolf, 04 November 2020

The Covid-19 pandemic has seen the reintroduction of national border controls within Europe’s Schengen Area, but the effectiveness of this is disputed. This column uses regional data on confirmed new Covid-19 cases from the statistical agencies of 18 Western European countries to show that border controls helped to contain Covid-19, but only for regions with a substantial number of cross-border commuters prior to the crisis. Better policy coordination at the European level could have generated these benefits at lower economic (and political) cost.

Bremer, Kuhn, Meijers, Nicoli, 04 November 2020

Concerns about a populist, Eurosceptic backlash have long been an obstacle to the fiscal integration of the EU. This column uses a new survey fielded in five countries – France, Germany, Italy, the Netherlands, and Spain – to measure the validity of those concerns. The results suggest that support for a joint European fiscal instrument is high; that the pandemic recovery plan agreed under ‘Next Generation EU’ is a well-tailored instrument; and that making the recovery fund permanent would provide a path to political sustainability and garner widespread support among European citizens.

Repullo, 04 November 2020

The ‘reversal interest rate’ is defined as the rate at which accommodative monetary policy reverses its intended effect and becomes contractionary for lending. The idea is that excessively low monetary policy rates lead to a reduction in the value of banks’ capital, which reduces bank lending. This column shows, however, that that lower rates can only lead to a contraction in bank lending if the bank is a net investor in debt securities, a condition typically only satisfied by high deposit banks. Thus, when it exists, the reversal rate will depend on bank-specific characteristics.

Söderlund, 04 November 2020

Strict travel restrictions are preventing business partners from different countries from meeting in person. This column explores the effect of business travelling time on trade using data from the liberalisation of Soviet air space in 1985, which radically reduced flight times between Europe and East Asia. The findings reveal that travelling time can account for most of the trade frictions that cause bilateral trade to sharply decline with geographical distance, suggesting that the current travel restrictions could have large negative effects on trade.

Rees-Jones, D'Attoma, Piolatto, Salvadori, 04 November 2020

While few groups have weathered the Covid-19 crisis unscathed, recent evidence suggests that the damage has been especially extreme among the economically vulnerable. This column evaluates changing attitudes towards welfare spending as a result of the pandemic. The findings suggest that people living in areas most severely hit by the crisis are increasingly supportive of long-term reforms to the welfare system. Despite having access to relatively widespread welfare spending, European citizens are dissatisfied with the safety net systems currently in place. 

O'Connell, De Paula, Smith, 04 November 2020

The first wave of COVID-19 infections led to widespread stories of shortages in grocery stores as consumers stocked up in anticipation of lockdowns. This column summarises findings, based on household scanner data from the UK, on the extent of consumer hoarding during the first phase of the pandemic. It shows that there were large spikes in demand for storable goods, and this was mainly driven by many households purchasing these goods more frequently. 

Egger, Loumeau, Loumeau, 03 November 2020

China’s transport infrastructure network has experienced unprecedented growth, both in terms of length and quality, in the last two decades. Using hand-collected and digitised data on the Chinese road and railway networks over time, this column discusses the magnitude and the long-run consequences of the country’s transport infrastructure changes. It finds that increased network centrality fosters regional convergence in population and, to a lesser extent, in real per-capita incomes. Facilitated goods transport and increased technology diffusion contribute the lion’s share of these effects.

Becker, Heblich, Sturm, 03 November 2020

Raising the level of public employment is a frequently used policy instrument to support economically lagging regions. This column evaluates the impact of changes in public employment on private sector activity using the creation of the West German government in Bonn as a source of exogenous variation. It finds that relative to a control group of cities, public employment increased substantially in Bonn, but this led to only a modest increase in private sector employment. This suggests that public sector jobs may not be a magic bullet to kickstart local economies.

De Philippis, Rossi, 03 November 2020

There is an abundance of evidence to show that differences in educational attainment play a major role in defining cross-country variations in economic outcomes. This column shows that these cross-country gaps go beyond differences in school quality and parents' socioeconomic background, and that country-specific cultural values, transmitted through parental practices, play an important role. This should inform policies that attempt to replicate the successes of higher-performing countries.

Laudares, 03 November 2020

The existing literature on deforestation focuses on the environmental impacts. Using a novel panel dataset from Brazil, this column finds that deforestation is also playing a significant role in the transmission of COVID-19 to Indigenous populations, with one km2 deforested today estimated to result in 9.5% more new COVID-19 cases among Indigenous people in two weeks. In addition to being an environmental problem, deforestation is also a key health and economic issue, given the importance of curbing the spread of the COVID-19 to save lives and prevent an increase in inequality.

Atalay, Edwards, Schurer, Ubilava, 02 November 2020

Some commentators argue that the measures implemented to slow the spread of Covid-19 will do more harm than good due to the economic contraction itself, but also due to the mental health impacts of the imposed social isolation. This column uses evidence from the past four decades in Australia to show that economic downturns actually have very little impact on mortality except to reduce vehicle transport deaths. While this of course does not preclude an impact on wellbeing from the current lockdowns or recession, we may at least see an even greater reduction in mortality during this recession due to fewer people being on the roads.  

Iacono, Ranaldi, 02 November 2020

The uneven distribution of wealth in society is commonly perceived as a matter of concern per se for inequality-averse policymakers. However, being wealth-poor or wealth-rich is also correlated with outcomes in the labour market. This column examines how wages and unemployment vary across the relative distribution of personal wealth in Norway, focusing on the wage-to-unemployment ratio across the different percentiles of the wealth distribution. It finds that wealth-poor individuals cannot escape low labour incomes regardless of the unemployment rate they face, while the unemployment elasticity of wages is substantially higher for wealth-rich individuals.

Jaworski, Kitchens, Nigai, 01 November 2020

The interaction between domestic transportation networks, market integration, and globalisation is important for understanding the value of domestic infrastructure investment and weighing these against the substantial costs of building and maintaining domestic roads. Using an endogenous specification of domestic and international trade costs that takes into account the availability of the road network and congestion levels, this column estimates that the total value of the entire US highway system was $619 billion in 2012 dollars, which accounts for 3.9% of US aggregate GDP in 2012. The results suggest that decisions on how much to invest in domestic infrastructure should be made in conjunction with considering how improvements in the domestic transportation networks would affect domestic and international trade as well as distributional consequences for different locations within a country.

Wagner, Boertien, Gørtz, 01 November 2020

Couple formation plays an important role in affecting both the extent to which wealth remains concentrated from one generation to the next and in subsequently shaping wealth inequalities. This column uses administrative data from Denmark to study partner selection based on parental wealth. It finds a relatively low correlation in partners' parental wealth overall, but a high degree of homogamy at the top of the parental wealth distribution. In addition, it finds that homogamy based on parental wealth has increased steadily during the period 1980-2013. 

Bruhn, Imberman, Winters, 01 November 2020

Charter schools in the US – publicly funded but independently operated schools of choice – are often criticised for competing with and harming the quality of surrounding traditional public schools. This column examines Massachusetts’s expansive and effective charter-school sector for the relationship between teacher quality and mobility. Charter schools retain fewer teachers compared to traditional public schools and the best teachers often move to the traditional public-school system. Charter schools may benefit traditional public schools by providing an alternative pathway for unlicensed teachers to enter the labour force and sorting those who are successful in to traditional public schools. 

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