February 2022

Calomiris, Larrain, Schmukler, Williams, 28 February 2022

The 2008 global crisis was followed by a boom of US dollar-denominated bonds in emerging markets. This column shows that this post-2008 growth was characterised particularly by large bonds, with principal greater than or equal to $500 million. Key drivers of this boom were the development of emerging market corporate bond indices and the increasing interest of institutional investors from developed countries in emerging markets. This growth in dollar-denominated borrowing could create instability in emerging markets, especially as US monetary policy begins to tighten. 

Airebule, Cheng, Ishikawa, 28 February 2022

Carbon emissions are conventionally measured solely from the perspective of producers. Critics argue that this weakens the emission reduction targets set by participants of the United Nations Climate Change Conferences. This column analyses the emissions of the five largest polluters using a novel measure that accounts for both the consumer and producer perspective. This increases measured emissions from the US and Japan and reduces those from China, India, and Russia due to international trade patterns. The finding raises important questions about how to appropriately allocate responsibility for reducing carbon emissions in the future.

Acemoğlu, Beck, Obstfeld, Park, 28 February 2022

As the world is (hopefully) emerging from the Covid-19 pandemic, major challenges await societies across the world related to climate change, inequality, digitalisation, and the undermining of democracy. A new book from CEPR and the Korea Institute of Finance discusses the institutional changes needed to address these challenges and the necessary reforms to make the global financial system more resilient.

Palma, Reis, Rodrigues, 27 February 2022

The comparatively slow economic growth of Southwestern Europe since the Middle Ages is often attributed to gender discrimination and the idea that women had more agency in England and the Low Countries, which kept fertility levels low and human-capital formation high. This column combines a dataset from six centuries of archival sources with a qualitative discussion of comparative social norms to show that women in Portugal were no more discriminated against than women in other parts of Western Europe, which suggests that other factors must be responsible for the divergence in incomes.

Gilchrist, Wei, Yue, Zakrajšek, 26 February 2022

The interconnections between the balance sheet of a sovereign and those of global financial institutions can lead to a widening of sovereign spreads unrelated to country-specific fundamentals. This column explores this financial-sovereign risk nexus and documents that a substantial portion of the co-movement among sovereign spreads can be accounted for by changes in global financial risk. Specifically, an increase in global financial risk causes a large and persistent widening of sovereign spreads, with the spillover effects especially pronounced for speculative-grade sovereign debt.

Vaitilingam, 25 February 2022

With sharply rising US inflation prompting debate about the potential role of powerful firms in driving up prices and whether antitrust interventions and/or price controls may be an effective policy response, the IGM Forum at Chicago Booth invited its panel of leading US economists to express their views. As this column reports, few think that dominant corporations in uncompetitive markets are a significant factor in rising prices; and asked whether antitrust interventions could reduce inflation, more than four in five experts disagree. A smaller majority disagrees with the proposition that 1970s-style price controls could reduce inflation, but even those who say that they might work don’t necessarily think that reintroducing them should actually happen. 

Bloom, Iacovone, Pereira-López, Van Reenen, 25 February 2022

The implications of poor management in developing countries are becoming well known, but what drives these differences is less clear. Based on large new surveys in Mexico and the US, this column argues that misallocation is a key driver of these differences. Frictions from low competition and weak rule of law appear to lie behind the difficulties even well-managed firms in Mexico have in growing, especially in the services sector. These results point to the importance of open and contestable markets, improving contract enforcement, and lowering crime and corruption as key mechanisms to improve firms' management and productivity.

Adam, 25 February 2022

Inflation reduces economic welfare by distorting demand. But what is the inflation rate that minimises these distortions? Maybe it's a lot higher than our models assume, Klaus Adam tells Tim Phillips.

Read more about this research and download the free DP:
Adam, K, Gautier, E, Santoro, S and Weber, H. 2021. 'The Case for a Positive Euro Area Inflation Target: Evidence from France, Germany and Italy'. CEPR

Hazan, Weiss, Zoabi, 24 February 2022

In the late 19th century, US states began giving economic rights to married women. Before that, laws of ownership and control over property and income gave the husband virtually unlimited power within the household. This column examines how these changes in women’s economic power affected households and children. The findings suggest that expanding women’s rights increased their power at home, causing a ‘household revolution’ of decreased fertility and more education.

Bianchi, Giorcelli, Martino, 24 February 2022

The relationship between fiscal autonomy of local government and provision of public services has been extensively analysed, but the spillover effects to local labour markets have received limited attention. This column measures the effects of greater fiscal decentralisation in Italy by exploiting variation in local property taxes. Greater decentralisation increases the public provision of childcare and, consequently, female labour force participation. This effect is shown to be particularly strong among women under the age of 35, pointing to the importance of affordable childcare in shaping women’s labour market activity.

Ivashina, 24 February 2022

As interest rates shift from a decades-long decline to hovering at the zero lower bound and potentially increasing significantly, the private equity industry will face new pressures. The inflow of capital to the asset class will decelerate, leading to an increased scrutiny of costs and an opportunity to shift bargaining power to limited partners. The first LTI Report argues that while the private equity industry has made promising steps towards innovation to preserve momentum, the adverse macroeconomic pressures will likely still prevail, affecting the industry’s growth and, subsequently, its cost structure, which remains a controversial subject. 

Schwab, Doherty, 23 February 2022

Concerns about globalisation have intensified in recent years. A recent survey from the World Economic Forum revealed that while three-quarters of those surveyed thought expanding trade was a good thing, less than half thought globalisation was good for their own country. This column argues that globalisation contributes broadly to prosperity and freedom, but that it must be harnessed in ways that bring improved living standards and justice to all. Faster progress toward these goals demands effective public-private cooperation.  

Aizenman, Cukierman, Jinjarak, Nair-Desai, Xin, 23 February 2022

There is a striking gap between official Covid-19 deaths and excess mortality data across many countries. This column evaluates the quartile ranking of countries during the pandemic using official and excess mortality data. By the end of 2021, the quartile rankings of three fifths of the countries differ when ranked by excess versus official mortality. Countries that are ‘doing substantially better’ in excess mortality are characterised by lower population density, higher GDP per capita, and higher scores on institutional and policy variables. Regression analysis confirms these results and reveals a discernible effect of vaccines on the excess-official gap.

Hanushek, Jacobs, Schwerdt, van der Velden, Vermeulen, Wiederhold, 22 February 2022

Parents influence their children in many ways, but which family features actually cause the strong intergenerational linkages that we observe? This column presents the first causal evidence on cognitive skill transmission in the family. Using Dutch survey and registry data, the authors show that parents’ maths and language skills strongly affect the same skills in their children, and that skills within dynasties are not just genetically determined but are significantly affected by educational experiences. This highlights the importance of good educational environments in alleviating persistent inequalities.

Butcher, Moran, Watson, 22 February 2022

The caregiving workforce in the US will have to dramatically expand to meet the needs of the ageing population. This column argues that less-educated immigration could partially solve the problem. Using data from 1980 to 2017, the authors show that immigration increases the supply of home care for the elderly in the US and reduces its cost, while at the same time improving the quality of care for those who live in institutions.

Tanaka, Teshima, Verhoogen, 21 February 2022

Press accounts of dirty activities springing up in developing countries, in part to evade stricter environmental regulations in developed ones, are all too common. But previous academic research has found little systematic evidence of such pollution-haven effects between the global North and South. This column looks at the recycling of lead-acid batteries in the US and Mexico, and finds that tightened US regulations around lead increased exports of batteries to Mexico for recycling, worsening health outcomes for locals, especially the poor.

Conti, Ekamper, Poupakis, 21 February 2022

The immediate negative effects of environmental or man-made disasters are usually highly noticeable and easily quantified. However, such events have also important long-lasting effects for those who experience them, since as early as in utero. This column explores how several co-occurring severe in-utero shocks during the Dutch Hunger Winter at the end of WWII affected adolescence health. Cohorts exposed since early gestation had higher BMI and were more likely to be obese at age 18, partly due to warfare exposure and reduced protein intake.

Bisin, Moro, 20 February 2022

The dynamics of a pandemic like Covid-19 depends crucially on various dimensions of heterogeneity in the population, notably on its demographic structure and on its spatial distribution. This column shows that (1) local herd immunities induced by the spatial structure of the population along socio-demographic dimensions substantially affect the effectiveness of various non-pharmaceutical interventions; and that (2) in this context, policies naively ignoring agents’ and firms’ behavioural responses (hence exposed to a Lucas critique argument) have substantial costs in terms of their effectiveness in containing the pandemic.

Korsgren, Van Lent, 19 February 2022

Earmarked paternity leave has been introduced in many countries, often with the aim of increasing mothers’ labour market participation. Multiple studies have documented limited, if any, effect, on this especially in the long run, but the policy’s wider impact on parental wellbeing has received less attention. This column uses detailed data on life satisfaction in Europe to show that paternity leave quotas have a positive effect on both mothers’ and fathers’ wellbeing. This uplift disproportionately benefits mothers and is driven by improvements to satisfaction within the home, not the workplace.

Aksoy, De Haas, 18 February 2022

A recent experiment in Serbia, Turkey and Ukraine attempted to overcome deep-seated prejudice against the LGBT community using information. Ralph De Haas and Cevat Aksoy of the European Bank for Reconstruction and Development tell Tim Phillips about which messages cut through, and what impact can they have in the face of religious and state hostility.

You can read more about this research and download the free DP:
Aksoy, C, Carpenter, C, de Haas, R, Dolls, M and Windsteiger, L. 2022. 'Reducing Sexual-Orientation Discrimination: Experimental Evidence from Basic Information Treatments'. CEPR

Kahn, van Oordt, Zhu, 18 February 2022

An inconvenient aspect of physical cash is that it can be lost without a way to recover it. This column considers a feature to solve this problem for offline digital cash: automated personal loss recovery through an expiry date. Consumers whose digital cash expired unused would automatically receive their funds back into their online account without having to file a claim. Personal loss recovery could substantially increase consumer demand for digital cash, with the time to expiry playing a key role.

Verwey, Leal, Wozniak, 18 February 2022

Intensified headwinds softened the EU’s growth momentum around the turn of the year. The European Commission’s Winter 2022 Forecast expects that as these headwinds gradually fade, the expansion of the European economy will regain pace in the second quarter and remain robust until 2023. Following a strong rebound in 2021, growth in the EU is now forecast at 4.0% in 2022 (down from 4.3% in the Autumn Forecast) and 2.8% in 2023. The euro area inflation forecast for 2022 is revised up on the expectation that energy prices will stay high for longer. Inflation is expected to return to just below 2% in 2023. 

Erten, Keskin, 18 February 2022

Import competition and trade-induced job losses impact people differently by gender. However, little is known about the potential effects of trade liberalisation on intimate partner violence experienced by women. This column examines the aftermath of large-scale unilateral trade liberalisation enacted by Cambodia in 2004 when it became a WTO member. In districts facing larger tariff reductions, men’s paid employment significantly declined, while women’s employment in family enterprises increased. Women in those districts also experienced an increase in physical, sexual, and psychological violence. Neglecting such potentially large backlashes may yield upward-biased estimates of the societal benefits of trade liberalisation.

Dinkelman, Ngai, 17 February 2022

The entry of women into the labour force is central to the ongoing structural transformation of African economies. This column uses detailed time-use data to document the scale and nature of female participation in both unpaid work in the home and paid work in the market. While female labour force participation is high, most hours continue to be worked in the home, on tasks such as cooking and cleaning, rather than in the market. This suggests an important role for policy to address both technological and cultural barriers to paid market work for women. 

Kaiser, Lusardi, Menkhoff, Urban, 17 February 2022

Financial education programmes are sometimes dismissed by critics claiming ‘mixed evidence’ on their effectiveness. This column analyses a full set of available randomised controlled trials evaluating the causal impact of financial education around the world to show that this claim is misleading. Financial education is effective in improving both knowledge and behaviour, even adjusting for publication selection bias. Moreover, available estimates indicate these improvements come at relatively low costs. 

Coroneo, Iacone, Paccagnini, Santos Monteiro, 16 February 2022

Forecasting the evolution of an epidemic is of utmost importance for policymakers and healthcare providers. This column examines the predictive accuracy of the COVID-19 death projections produced by several independent forecasting teams and collected by the US Centers for Disease Control and Prevention. The authors find that forecasters can be more successful over long horizons (three to four weeks) than a simple benchmark model. The ensemble forecast, which combines all forecasts, is one of the top performers. 

Ahlfeldt, Roth, Seidel, 16 February 2022

Ambitious minimum wages of 60% or more of the national mean wage are currently being debated in many countries. This column discusses the trade-off policymakers face when setting minimum wages. A quantitative spatial general equilibrium model predicts that the welfare-maximising minimum wage is higher than the employment-maximising minimum wage. Beyond 50% of the mean wage, increases in the minimum wage reduce employment at an increasing rate. Therefore, the optimal minimum wage depends on the social welfare function.

Bindler, Hjalmarsson, Ketel, Mitrut, 15 February 2022

Being the victim of crime harms health and labour market outcomes for adults, and educational outcomes for juveniles. Using data from all reported victimisations in the Netherlands between 2005 and 2018, this column finds a sharp and discontinuous increases in victimisation risk at ages 16 and 18, when bundles of rights – to purchase alcohol and tobacco, to enter bars and clubs, to drive mopeds and cars – are conferred on Dutch young people. The findings raise policy questions related to the optimal timing of granting these rights and whether steps should be taken to offset the risks associated with them.

Greenspon, Stansbury, Summers, 15 February 2022

The real pay of typical workers has grown much more slowly than productivity over recent decades in several developed economies. This column uses data from the US and Canada to examine whether productivity growth actually benefits typical workers by raising their pay. The authors find strong evidence of linkage between productivity and pay in the US but more mixed evidence for Canada, possibly due to it being a smaller, more internationally open economy. Overall, the findings suggest that measures to boost productivity growth are important for raising pay for the average and typical worker.

Handley, Kamal, Ouyang, 14 February 2022

Assessing the effects of trade participation on domestic job growth is complicated by global supply chains – both exporters and domestic producers rely on imported inputs. This column describes findings from a new US Census Bureau public-use data product combining longitudinal information on firms, workers, and merchandise trade transactions. The statistics reveal the growing importance of exporters and importers for US job growth. A direct implication is that protectionism can dampen US traders’ competitiveness and adversely impact overall domestic job growth.

Dorn, Levell, 14 February 2022

The consensus view until the 2010s was that trade had little impact on inequality in high-income countries. This column reviews the recent evidence that challenges this view. Manufacturing employment contracted sharply in countries like the US and the UK which faced rapid net import growth from China. The resulting, persistent adverse effects on employment and incomes of low-skilled workers do not appear to have been offset by trade’s effect on prices, which seems to have benefited rich and poor households alike. Mitigating these effects is an important but difficult task for policymakers. 

Pisu, D’Arcangelo, Levin, Johansson, 14 February 2022

Despite the commitments of the 2021 UN Climate Change Conference, countries’ climate mitigation policies are not enough to meet their ambitious emissions reduction targets. This column puts forward a framework for designing comprehensive decarbonisation strategies that promote growth and social inclusion. A policy mix based on three components is needed: (1) emission pricing, (2) standards and regulations, and (3) complementary policies that offset distributional effects. A robust and independent institutional framework and credible communications campaigns are key to managing policy constraints and enhancing public acceptance of mitigation policies.

Campbell, Macmillan, Murphy, Wyness, 13 February 2022

Many governments have tried to increase the number of young people attending university, raising the question of how well ‘matched’ students are to their degrees. This column follows an entire cohort of 140,000 students in the UK from school to university to discover the types of students that tend to ‘undermatch’. Students with a lower socioeconomic status background are more likely to be undermatched to their degrees both academically and in terms of earnings potential, and women are more likely to undermatch than men when it comes to earnings potential.

Geraci, Nardotto, Reggiani, Sabatini, 12 February 2022

Social capital, including networks and relationships, civic engagement, and trust, is central to a well-functioning society. This column examines the relationship between social capital and internet access in the UK. The findings show that following broadband take-up, civic and political engagement systematically declines with increasing speed of Internet connection. Time-consuming activities oriented to the pursuit of collective welfare, such as engagement in associations, suffer the most from broadband penetration, while relationships with family and friends are less affected.  

Chambru, Henry, Marx, 11 February 2022

One of the most remarkable achievements of the French Revolution for ordinary people was the reorganisation of local government. Cédric Chambru, Emeric Henry and Benjamin Marx tell Tim Phillips how local state capitals emerged as a result, and what this tells us about how state capacity develops.

Read the VoxColumn about this research: Chambru, C, Henry, E and Marx, B. (2022), Building a state one step at a time: Evidence from France, VoxEU.org, 03 February.

Download the free DP: Chambru, C, Henry, E and Marx, B. 2021. 'The Dynamic Consequences of State-Building: Evidence from the French Revolution'. CEPR

Mäki-Fränti, Silvo, Gulan, Kilponen, 11 February 2022

New monetary policy instruments introduced by the ECB following the 2008-2013 financial and debt crisis have raised concerns that central banks’ securities purchase programmes disproportionately benefited wealthy households. Using Finnish data, this column finds that while the impact on economic growth has been significant, on average the changes in income and wealth disparities have been small. Nevertheless, the results suggest the precise channels through which monetary policy affects inequality may differ across countries.

Kawasaki, Ikeda, 11 February 2022

Attitudes towards immigrants have become a crucial topic in policy and politics. This column uses tools from network science to identify and compare determinants of attitudes toward immigrants from a global perspective. It finds that prejudice is a common determinant of negative attitudes across all regions, especially towards people of another race. Furthermore, individuals in European countries display a more values-based approach towards determining attitudes, compared to non-European contexts. These results imply that successful communication by policymakers on the topic of immigration should account for region-specific cultural and socio-political factors. 

Crémer, Dinielli, Fletcher, Heidhues, Schnitzer, Scott Morton, 11 February 2022

The final stage of negotiations around the EU Digital Markets Act are underway. This column highlights five key sets of issues that remain under debate and provides an economic perspective. The authors support several of the proposed amendments, such as extending the prohibition on parity clauses and introducing new rules to address the anti-competitive use of default settings. They also agree with the intention of the latest proposals on self-preferencing, interoperability and data portability, and remedy options, but suggest some modifications.

Ilzetzki, 10 February 2022

Consumer prices in the UK rose by 5.4% (year-on-year) in December 2021, the highest annual rate of inflation since the UK adopted an inflation target in 1992. The January CfM survey asked a panel of experts on the UK economy to evaluate the causes and prospects of the current inflation surge. The panel was nearly unanimous in thinking it was caused by supply side factors that are mostly global in nature (commodity prices, supply chain disruptions) and fall outside government control. The majority of the panel believes that inflation will not persist beyond 2022. 

Adrjan, Ciminelli, Criscuolo, Gal, Judes, Nicoletti, Koelle, Leidecker, Losma, Schwellnus, Sinclair, 10 February 2022

The COVID-19 pandemic triggered a surge in teleworking, raising questions about its persistence as well as its impact on firm performance and worker wellbeing. Leveraging real-time online job postings data from Indeed and a recent OECD survey of managers and workers, this column argues that teleworking is here to stay – for most workers in a hybrid mode with two or three working days per week at home. A majority of managers and workers value teleworking positively but emphasise the need for adaptive measures, such as the coordination of schedules and investment in ICT hardware, software, and skills.

Beck, Silva-Buston, Wagner, 09 February 2022

Large cross-border banking groups dominate the global banking landscape. This column shows that supervisory cooperation can result in regulatory arbitrage by these global banking groups, shifting risky activities into third-country subsidiaries not covered by cooperation. The findings suggest that supervisory cooperation agreements can have negative externalities on third countries, undermining their overall effectiveness and pointing to a need to ‘cooperate on cooperation’.

Boone, Fels, Jordà, Schularick, Taylor, 09 February 2022

The Covid-19 pandemic will go down as one of the most severe human, economic, and financial events in the history of the modern world. Nations have accumulated public debt levels not seen since WWII in their efforts to tackle the health crisis and mitigate the ensuing economic dislocation. The private sector has also experienced a run-up in debt, but unlike the Great Mortgaging of the 2000s, this time led by the corporate sector. The 24th Geneva Report on the World Economy explores the geo-economic risks entailed by these historic levels of overall debt and concludes that while debt should not be ignored, neither should it be feared.

Palomino, Marrero, Nolan, Rodríguez, 09 February 2022

Wealth inequality can limit people’s ability to accumulate human capital, carry out business projects, or cope with major economic crises. Focusing on France, Spain, the UK, and the US, this column shows that intergenerational transfers, such as inheritances and inter vivos gifts, play a significant role in underpinning wealth inequality. When inheritances and gifts exceed a certain threshold, the opportunities to accumulate more wealth are greatly expanded.

Eberhardt, Facchini, Rueda, 08 February 2022

Academia faces increased scrutiny because of its gender imbalance. This column uses machine learning methods to analyse gendered patterns in the text of reference letters written for candidates for entry-level positions in the economics job market. The findings reveal that women are systematically more likely to be praised for being hardworking and at times less likely to be praised for their ability. Given the time and effort letter writers devote to supporting their students, the authors suggest this gender stereotype is likely due to unconscious biases.

Ha, Kose, Matsuoka, Panizza, Vorisek, 08 February 2022

In 2021, inflation in emerging market and developing economies reached its highest level since 2011, prompting many to increase their policy rates. This column argues that these economies need to employ credible, carefully calibrated, and well communicated monetary policies to contain inflationary pressures. Such policies tend to be more successful in anchoring inflation expectations in the presence of an inflation-targeting regime, high central bank transparency, and lower levels of debt.

Hau, Hoffmann, Langfield, Timmer, 08 February 2022

Corporate foreign exchange risk hedging mostly occurs through forward rate contracts with a dealer bank in over-the-counter markets. Unlike in a centralised market, prices are negotiated bilaterally, which gives rise to a large dispersion of transaction prices. It is often difficult for less sophisticated market participants to gauge the quote and execution quality due to the absence of relevant benchmarks, especially in real-time. This column uses new regulatory data to reveal how often firms get a bad deal and what they can do to avoid it.

Stiglitz, Gallagher, 07 February 2022

The IMF has imposed significant surcharges on countries that have had to undertake large borrowings and are unable to pay their debts back quickly. This column argues that these surcharges are pro-cyclical financial penalties imposed on countries precisely at a time when they can least afford them. They worsen potential outcomes for both the borrowing country and its investors, with gains accruing to the IMF at the expense of both. This transfer of resources to the IMF affects not just the level of poverty, health, education, and overall wellbeing in the country in crisis, but also its potential growth.

Bindler, Ketel, 06 February 2022

The costs and consequences for offenders of crime are well-documented, but much less is known about victim-related costs. Using unique and detailed register data from the Netherlands, this column finds that being a victim of crime leads to a significant and persistent loss in earnings and increase in social benefit receipt, and shorter-lived responses in health expenditure. While these findings have important implications about the social cost of crime, more high-quality data is needed to fill the knowledge gap and to learn about important policy lessons. 

Lafrogne-Joussier, Martin, Mejean, 05 February 2022

Global supply chains have been central in economic and policy debates since the start of the Covid-19 pandemic. This column uses the first lockdown in China in 2020 to study how firms involved in global value chains can help mitigate the effects of supply disruptions. Using monthly data on French firms, it finds that inventory management helped firms mitigate the shock, but the geographic diversification of input sourcing did not. Governments may thus consider giving incentives to firms to depart from just-in-time production processes, especially for those engaged in the production of critical products. 

Beck, 04 February 2022

Since the GFC the UK has used innovative macroprudential and monetary policy tools to maintain stability. But the UK is an international financial centre, and so does this policy framework create spillovers in other places, and do influences from elsewhere affect stability in the UK? Yes and yes, says Thorsten Beck.

Read more about this research and download the free DP:
Beck, T, Lloyd, S, Reinhardt, D and Sowerbutts, R. 2022. 'Macro-financial policy in an international financial centre: the United Kingdom experience since the global financial crisis'. CEPR

Cagé, Dewitte, 04 February 2022

The UK has regulated campaign finance practices for more than 150 years. This column analyses UK electoral campaigns from 1857 to 2017 to investigate the role played by money in politics. While the amounts spent on candidates’ campaigns have decreased dramatically since 1880, the correlation between this spending and the votes candidates received has in fact risen. The authors argue that this is due at least partly to the introduction of decentralised media technologies, such as local radio and the internet.

Vaitilingam, 04 February 2022

The pandemic has led to a big shift to working from home in occupations where the jobs, or some part of them, can be done remotely. The IGM Forum at Chicago Booth asked its panels of leading US and European economists about the potential impact of this continuing over the longer term. As this column reports, a majority of the experts consider that staff who work two days a week from home are, on average, likely to report higher levels of job satisfaction over the longer term. The respondents are more uncertain about the long-term impact on productivity and women’s career progression relative to their male counterparts.

Chambru, Henry, Marx, 03 February 2022

Effective states can raise taxes and armies, enforce laws, and produce public goods, but how these functions are built over time is not well understood. This column studies the administrative reform initiated by the French Revolution, one of history’s most ambitious state-building experiments, to shed light on the sequence of steps needed to build effective states. Cities chosen as local administrative centres initially invested in the state’s capacity to extract resources from citizens. These cities may not have grown in the short run, but the investments eventually delivered payoffs in terms of public goods, which stimulated long-run growth. 

Bofinger, Geißendörfer, Haas, Mayer, 03 February 2022

Joseph Schumpeter made pioneering contributions to economic theory on the relationship between the financial system and economic growth. However, the economic literature has often misinterpreted his work, particularly on the importance of banks and liquidity creation for development. This column argues that a correct interpretation of Schumpeter helps resolve many empirical puzzles which have emerged in the last decades. Using a panel of 43 countries, it finds strong positive effects of credit growth on GDP growth and little effect of saving on GDP and credit growth. 

Algan, Cohen, Péron, 02 February 2022

Covid-19 has demonstrated how future upheavals – from pandemics to climate change – will require strong cooperation between all actors, public and private. This column argues that trust, whether between people or in government and scientists, is a critical factor in addressing the challenges of a crisis like Covid-19. While health characteristics explain one-quarter of the cross-country heterogeneity in a combined index of GDP growth and health outcomes during the crisis, trust in government alone accounts for two-thirds of the variance.

Deb, Furceri, Ostry, Tawk, Yang, 02 February 2022

Countries worldwide launched wide-scale fiscal support measures to mitigate the unprecedented output losses caused by lockdowns aimed at flattening the COVID-19 curve. This column examines the effects of fiscal policy measures during the pandemic, using a novel database of daily fiscal policy announcements and high-frequency economic indicators for 52 countries from January 1 to December 31, 2020. The authors find that fiscal policy announcements have been effective in stimulating economic activity, boosting confidence, and reducing unemployment, but their effect varies by the type of measure and the stage of the pandemic. 

Behrens, Drabo, Mayneris, 01 February 2022

Cities are more vulnerable to economic shocks than to physical destruction. Yet, little is known about the factors that enhance their resilience to such shocks. This column uses data from Canada to show that cities that are more severely hit by big-plant closures and mass layoffs see their population shrink, especially among the young and working-aged residents. However, the initial presence of public and cultural services helps mitigate the adverse effect of massive job displacement on a city’s population.

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