Politics and economics

Çağatay Bircan, Orkun Saka, 10 May 2019

Government ownership of banks can help solve credit market failures and stabilise the supply of credit over the business cycle. However, it can also end up serving political interests and lead to a misallocation of financial resources. This column provides new evidence that state-owned banks systematically engage in tactical redistribution of credit in line with the political incentives of those in power. Analysing the geographical distribution of all lending and economic activity in Turkey, it shows that the central government may use commercial lending by state-owned banks to support allies in local elections.

Matěj Bělín, Jan Hanousek, 29 April 2019

The annexation of the Crimean peninsula by the Russian Federation in 2014 led to sanctions by the US and the EU, among others, and counter-sanctions by Russia. This column estimates that the value of trade lost due to Western sanctions over 2014-2016 amounts to $1.3 billion, while trade lost due to the Russian counter-sanctions amounts to $10.5 billion. There appears to be no evidence that Russian importers switched between suppliers from sanctioning countries to competitors from non-sanctioning countries.

Markus Eberhardt, 28 April 2019

Recent evidence suggests that a country switching to democracy achieves about 20% higher per capita GDP over subsequent decades. This column demonstrates the sensitivity of these findings to sample selection and presents an implementation which generalises the empirical approach. If we assume that the democracy–growth nexus can differ across countries and may be distorted by common shocks or network effects, the average long-run effect of democracy falls to 10%.  

Thiemo Fetzer, Carlo Schwarz, 23 April 2019

Tariff retaliation is widely believed to be politically motivated. This column presents evidence that retaliation against the Trump administration's tariff hikes seems to be systematically targeted against the Republican voter base. China appears to have been able to achieve a high degree of political targeting but likely harmed its own economy by targeting agricultural goods for which the US is a major supplier. The EU, on the other hand, appears to be more successful in navigating the trade-off. It also finds some evidence suggesting that Republican candidates fared worse in the mid-term elections in the US counties most exposed to retaliation.

Karl Aiginger, 20 April 2019

Populism represents a challenge to liberal democracy, pluralism, human rights, and the exchange of ideas. This column examines the features and drivers of populism, as well as the potential strategic response by the EU and its member states. This includes a vision for Europe to become the role model for high-income societies providing well-being, lower unemployment, and less inequality, and a leader in decarbonisation and public sector management.

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