This week from CEPR: April 11 2019

Thursday, April 11, 2019

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

**** You can sign up to our journalist mailing list here

**** Journalists can also apply for access to CEPR's Discussion Paper series via email


     

    A new CEPR study quantifies the impact of introducing a paywall on the demand for news in Norway. The research finds that the short-run average impact of a paywall is negative and between 3 and 4%. In the long run, the negative effect increases to between 9 and 11%.

    Competition policy expert Frode Steen notes that many news outlets entered the digital era with unrestricted access to their online content, seeking advertising revenues and facing competition for the attention of their readers. More recently, they have sought to restrict the amount of content available for free.

    His analysis of the Norwegian media market finds that the largest news outlet experienced larger effects than other news outlets. After introducing a paywall, the largest news outlets face a long-run reduction in demand of between 13 and 15%, as compared with the others, which experience a decrease of between 8 and 11%. The timing of introducing a paywall does not seem to affect the demand response.

    Figure 3: Development for selected papers of weekly hits in the national market from 2012 to the end of 2015, in thousands.

    Note: The news outlets in the figure are Verdens Gang, NRK, Dagbladet, TV 2, Aftenposten, and Dagens Næringsliv.


    The first proper assessment of social mobility in Italy has some good news and some bad news. On the one hand, the CEPR study reveals a somewhat less pessimistic picture of intergenerational mobility at the national level compared with previous sociological studies that tend to represent Italy as a paralysed society.

    On the other hand, the researchers reveal acute inequality in the degree of upward mobility within the country: the North East appears to be a land of equal and abundant opportunities; while the South is a land where ranks in society endure across generations. Compared with the United States and adjusting for the different levels of income inequality, Italy displays more upward mobility in the bottom tercile, but less everywhere else.

    The study links administrative data on tax returns across two generations of Italians to study the degree of intergenerational mobility. Upward mobility is higher for sons, first-born children, children of self-employed parents and for those who migrate once adults.

    The data reveal large variation in child outcomes conditional on parental income rank. Part of this variation is explained by the location where the child grew up. Provinces in Northern Italy, the richest area of the country, display upward mobility levels three to four times as large as those in the South. This regional variation is strongly correlated with local labour market conditions, indicators of family instability and school quality.

    Figure 8: Heatmap of Absolute UpwardMobility across provinces. Dark areas are more mobile.

    Left-panel (a): AUM computed on nominal income. Right-panel (b): AUM computed based on PPP-adjusted income (with regional price indexes)


    New CEPR research looks at the role of tax professionals and the profound effects they can have on the nature of the relationship between tax authorities and taxpayers. The study merges the tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. The data cover the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. 

    The researchers first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. They then exploit the unique structure of the dataset to study the channels through which these social spillover effects are generated.

    Two mechanisms may lie behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. The study provides evidence supporting the simultaneous presence of both mechanisms.



    MEDIA COVERAGE OF IMMIGRANT CRIMINALITY DRIVES POPULIST VOTES: Evidence from Switzerland

    Mathieu Couttenier, Sophie Hatte, Mathias Thoenig, Stephanos Vlachos
    02 April 2019

    Disproportionate coverage of immigrant crime provides political dividends for populist causes. That is the central finding of a study of a Swiss referendum to ban minarets.

    Populists often claim that immigration is a threat to the interests of the majority. Research by Mathieu Couttenier and colleagues quantifies the extent to which the media coverage of immigrant crime fuelled populist political support in a Swiss referendum. It finds that disproportionate coverage of immigrant crime increased an anti-minaret vote by 5%. 

     

    INCARCERATION AND UNEMPLOYMENT: The impact on the black-white marriage gap in the United States

    Elizabeth Caucutt, Nezih Guner, Christopher Rauh
    06 April 2019

    The decline in low-skilled jobs and the era of mass incarceration in the United States have disproportionately affected black communities, explaining as much as half the difference in the proportion of black and white women aged 25-54 who are married. That is the central finding of research by Elizabeth Caucutt, Nezih Guner and Christopher Rauh.

    In 2006, 67% of white women in the United States between the ages of 25 and 54 were married, compared with only 34% of black women. This study examines the link between this, jobs and prison. It finds that differences in incarceration and employment dynamics between black and white men account for half of the black-white marriage gap.

     

    INEQUALITY OF OPPORTUNITY: The missing link between income inequality and economic growth

    Shekhar Aiyar, Christian Ebeke
    03 April 2019

    In societies where opportunities are unequally distributed, income inequality exerts a greater drag on growth, according to evidence based on a new World Bank Global Database on Intergenerational Mobility.

    There are contrasting theories on the relationship between income inequality and growth, and the empirical evidence is similarly mixed. Shekhar Aiyar and Christian Ebeke point to the neglected role of equality of opportunity in mediating this relationship.


     

    A TAX CREDIT TO FOSTER INVESTMENT IN HUMAN CAPITAL IN THE EU

    Debora Revoltella, Philipp-Bastian Brutscher, Patricia Wruuck
    05 April 2019

    Spending on education underpins the formation of human capital. But intra-EU labour mobility means that returns to such spending often accrue somewhere other than where the investment takes place, which can lead to sub-optimal levels of investment in countries that are subject to persistent outward migration. 

    Writing at VoxEU, Debora Revoltella and colleagues at the European Investment Bank make the case for more intra-EU coordination on investment in education and propose a novel mechanism for fostering more investment in human capital across the EU.

     

    ZOMBIE FIRMS, WEAK BANKS, AND RESTRUCTURING

    Dan Andrews, Filippos Petroulakis
    04 April 2019

    New OECD research examines the connections between zombie firms (those that would exit or restructure in a competitive market), bank health and insolvency frameworks in Europe, as well as the consequences for productivity growth.
     
    Dan Andrews and Filippos Petroulakis note that Europe’s productivity problem is partly due to the rise of zombie firms that crowd out growth opportunities for others. They explore the tendency for weak banks to ‘evergreen’ loans to zombie firms to avoid realising losses on their balance sheet. Measures to strengthen bank balance sheets will be enhanced by insolvency regimes that encourage corporate restructuring.

     

    THE IMPACT OF GOVERNMENT SPENDING ON LOCAL ECONOMIC ACTIVITY: Evidence from US Department of Defense contracts

    Alan Auerbach, Yuriy Gorodnichenko, Daniel Murphy
    04 April 2019


     

    The strength of fiscal multipliers and spillovers have been the subject of intense debate in recent years. Analysing data on US Department of Defense contracts and income and employment outcomes, Alan Auerbach, Yuriy Gorodnichenko and Daniel Murphy find evidence of strong positive spillovers across locations and industries, although the geographical spillovers appear to dissipate fairly quickly with distance.

     

    PUBLIC DEBT THROUGH THE AGES

    Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves, Kris Mitchener
    01 April 2019

    Sovereign debt is a Janus-faced asset class. In the best of times, it relaxes the domestic constraint on saving, smooths consumption, and finances investment. Investors see it as a safe haven, as delivering ‘alpha’, and as a means of portfolio diversification. In the worst of times, it is associated with debt overhangs, banking collapses, exchange rate crises and inflationary explosions. 

    A new study by Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves and Kris Mitchener uses history to illuminate both side sides of the story. Historical evidence helps because defaults on sovereign debt are not as frequent as on, say, corporate bonds. History can enrich our understanding of those features of sovereign debt that are associated with crisis resolution, since there are variations over time in the structure of debt contracts, their enforceability, and costs of default. 

    But history also illustrates how governments have used sovereign debt to shape economic and political development. It shows how they have used it to build states, provide public goods and complete infrastructure projects. 


     

    QUANTITATIVE EASING AND THE ‘HOT POTATO’ EFFECT: Evidence for the Eurozone

    Ellen Ryan, Karl Whelan
    05 April 2019

    Banks dealt with increased reserves from the European Central Bank’s asset purchase programme with the purchase of debt securities or paying down funding sources rather than lending to the real economy. That is the finding of research by Ellen Ryan and Karl Whelan.

    The quantitative easing programme in the Eurozone saw central banks’ reserve balances increase to unprecedented levels. The new study analyses the response of banks in the euro area to this expansion in system-wide reserves, in particular whether they absorbed the excess liquidity or tried to push it off their balance sheets. 

     

    REFORM OF CHINESE STATE-OWNED ENTERPRISES IN THE PENUMBRA OF THE STATE

    Ann Harrison, Marshall W. Meyer, Will Wang, Linda Zhao, Minyuan Zhao
    07 April 2019

    Privatised state-owned enterprises (SOEs) in China continue to benefit from government support in the form of low-interest loans and subsidies relative to private firms that have never been state-owned. They also continue to underperform private firms, according research by Ann Harrison and colleagues.

    The conventional wisdom that privatisation of SOEs reduces their dependence on the state and yields positive economic benefits has not always been borne out by empirical work. Using a comprehensive dataset, this column shows that privatised SOEs continue to benefit from state support. Although there are clear improvements in performance post-privatisation, privatised SOEs continue to underperform significantly compared with private firms.


     

    MACROPRUDENTIAL POLICIES FOR TACKLING SYSTEMIC RISKS: The IMF’s database 

    Adrian Alter, Gaston Gelos, Heedon Kang, Machiko Narita, Erlend Nier
    03 April 2019

      Economists at the International Monetary Fund have developed a new database of how macroprudential policies being implemented around the world. This indicates how tools such as limits on loan-to-value ratios can be used more precisely & effectively.
     
    The IMF’s new iMaPP database integrates five major existing databases and provides novel insights into the non-linear effects of changes in loan-to-value limits as one example of how better data can help policy-makers to use macroprudential tools. 


    CEPR is working in partnership with UBS to celebrate contributions of women in economics, with a series of portraits and video interviews on a dedicated website.
    This programme shines a light on quality research and policymaking from female leaders in their field. "Women in Economics" will feature videos of prominent researchers discussing their work and insights. The content is designed to appeal to non-expert audiences as well as those with a deeper understanding of economics.

    Founded on the UBS “Nobel Perspectives” concept, where, since 2015, UBS has been documenting the lives and work of Nobel Prize-winning economists, this partnership will highlight great economic minds and showcase the outstanding contributions they are making. The aspiration is to underline women’s contributions to the field of economics and inspire future generations.


    • Find out more here
    • Read the introductory VoxEU column here

    The series starts with Belgian economist Marianne Bertrand, the Chris P. Dialynas Distinguished Service Professor of Economics at the University of Chicago's Booth School of Business. 



     

    A GREEN MONETARY POLICY 

    Dirk Schoenmaker interviewed by Tim Phillips, 05 April 2019

    Randomised controlled trials (RCTs) have revolutionised development policy. But do the interventions that work in the short run have a benefit 10 or 20 years later? Ted Miguel tells Tim Phillips how he and his colleagues aim to find out.



    INEQUALITY, TECHNOLOGICAL CHANGE AND GLOBALISATION  

    David Autor

    Do trade and technology harm jobs? David Autor of MIT argues that we shouldn't mix the two as their effects are very different.


    GENTRIFICATION AND A GOLDEN AGE OF DATA  

    Edward Glaeser

    Sources such as Yelp can provide very immediate data on neighbourhood change, in contrast to official data sources, which are very accurate but appear with considerable lag. Comparing data from Yelp with these official data, from a period where both are available, reveals that the Yelp data are more accurate for areas of higher density and general education level.
     
    Edward Glaeser of Harvard University investigates to what extent the Yelp data can be used to substitute the official data in periods for which they are not yet available, particularly when predicting gentrification of areas.