CEPR News In focus this week: 26 July 26 Jul 2023 This weekly press briefing highlights some of the latest research reports, discussion papers and other publications from CEPR. It also features some of the latest columns on VoxEU, as well as new blogs/reviews, audio interviews and short films.
FANTASTIC TAX CUTS AND WHERE TO FIND THEM Writing at VoxEU, Felix Bierbrauer, Pierre Boyer and Emanuel Hansen provide new theoretical insights on the requirements for a tax reform that makes everyone better off. Furthermore, they show that if there is no self-financing tax cut with changes to one or two income brackets, then a more complicated reform will also not work. The authors apply these insights to the US Earned Income Tax Credit reform in 1975. Although this reform had the correct properties, the analysis concludes that it was not fully self-financing.
THE IMPACT OF GAS SUPPLY SHOCKS IN EUROPE Writing at VoxEU, Piergiorgio Alessandri and Andrea Gazzani analyse the economic impact of gas supply shocks using state-of-the-art econometric techniques. The research shows that negative shocks to gas supplies cause a decline in economic activity and a sizeable and long-lasting increase in the price of both energy and ‘core’ goods. The pass-through to core inflation is gradual and highly persistent, suggesting that European economies are still grappling with the spikes in gas prices that took place in 2022.
EUROPE'S NATURAL GAS SUPPLY CONCERNS EASED BY EU POLICY AND MARKET REBALANCING Throughout 2022, the weaponisation of natural gas supplies by Russia led to concerns regarding the security of natural gas supply in Europe. Writing at VoxEU, Miguel Gil Tertre, Ignacio Martinez and Manuel Rivas Rábago review the reasons behind the increases in energy prices and prospects for 2023–24: - Decisive EU policy and market rebalancing helped reduce concerns about shortages, bringing prices back to physical fundamentals. - Similar spikes to those experienced in the summer of 2022 are less probable in the winter of 2023–24. - Managing demand, increasing diversification, and renewing focus on the security of supply remain necessary.
THE ECONOMIC IMPACT OF CLIMATE CHANGE ON US COUNTIES IS SIGNIFICANTLY UNDERESTIMATED: Evidence from a new framework Writing at VoxEU, Adrien Bilal and Esteban Rossi-Hansberg introduce a new framework to estimate the economic impact of climate change on all US counties, revealing it to be roughly twice as large as previous studies. Anticipation of future changes plays a key role in regional outcomes, as those who anticipate the effects are more likely to relocate, leading to reduced losses in those areas. Incorporating adaptation and anticipation into climate assessment models is thus crucial for credible estimates of the local impact of climate change.
UKRAINE’S LABOUR MARKET DURING WARTIME: Evidence from online job advertisements A study by Tho Pham, Oleksandr Talavera and Zhuangchen Wu uses data from millions of online vacancies to show that while the invasion caused a short-term surge in demand for Ukrainians to work in Poland, the number of vacancies in Ukraine has remained relatively similar to its pre-war level. Nevertheless, some jobs have seen greater impacts than others, particularly those that require higher skill levels and those traditionally dominated by female workers. Ukrainian workers are also being offered lower wages since February 2022.
INFORMATION GAP CONTRIBUTES TO HEALTHCARE DISPARITY IN THE UK High-income patients tend to receive more care from higher-quality doctors and hospitals than low-income patients. A study by Zach Brown, Christopher Hansman, Jordan Keener and Andre Veiga examines the role that information plays in this disparity, focusing on choice of general practitioner in England. The research finds that: - Low-income patients were significantly more responsive to star ratings of GPs on the NHS website than high-income patients, suggesting that high-income patients had access to other sources of information about GP quality. - Simulations indicate that compared to the status quo, equalising information across income groups would reduce disparities by approximately one-fifth.
INTERNATIONALISING CHINA’S EQUITY MARKETS: The role of domestic and foreign investors Chinese equity markets have become more internationalised since 2013, experiencing significant growth. Writing at VoxEU, Juan J. Cortina et al. show how firms that became connected to foreign markets benefitted by raising equity financing and increasing investment disproportionally. Domestic investors financed most of the expansion of connected firms. Foreigners increased their presence in China later, after the MSCI Emerging Market Index incorporated domestic listed Chinese stocks. As China’s importance in global indexes expands, foreign investors will likely increase their presence in China, with potential spillover effects on other countries.
THE SOURCES OF EMPLOYER MARKET POWER AND AVENUES FOR PRO-COMPETITIVE LABOUR MARKET POLICIES While there has been much research on monopolies, the causes and consequences of monopsony are less well understood. A study by David Berger, Kyle Herkenhoff, Andreas R. Kostøl and Simon Mongey uses data from Norway and finds workers in a monopsony are paid 21% less than the competitive wage. Half of this gap, or markdown, is driven by the fact that many employed workers do not search for new jobs because searches are time-consuming. Another third comes from workers liking their job over and above the wage. The remaining wage markdown is explained by non-competitive wage bargaining. This last may be the best target for policy to mitigate the effects of monopsonies.