This week from CEPR: April 15

Wednesday, April 14, 2021

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’.

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    • New Discussion Papers


    • COLLUDING AGAINST ENVIRONMENTAL REGULATION FOR PROFIT: The case of BMW, Daimler, Volkswagen and Diesel-Gate

    COLLUDING AGAINST ENVIRONMENTAL REGULATION
    Jorge Alé-Chilet, Cuicui Chen, Jing Li, Mathias Reynaert 
    CEPR Discussion Paper No. 16038 | April 2021

    The German automakers BMW, Daimler, and Volkswagen are accused of colluding to restrict the effectiveness of diesel emission control technologies. By jointly choosing small tanks rather than going alone, the German automakers substantially reduced the expected noncompliance penalties. The benefits to automakers and car buyers have come at the cost of grave environmental damages. The combined antitrust and environmental penalties would have to reach between 1.46 billion and 14.63 billion euros to remedy the welfare damages of this alleged collusion.

    These are among the findings of a new CEPR study by Jorge Alé-Chilet, Cuicui Chen, Jing Li and Mathias Reynaert, which examines the welfare effects of the alleged collusion by the three German automakers to reduce the size of diesel exhaust fluid (DEF) tanks, an emission control technology used to comply with air pollution standards. Among the findings: 

    • Firms improve market profits by shading pollution and evade noncompliance penalties by shading jointly. 
    • The three automakers chose DEF tank sizes that were 8% less effective on average than other firms’ choices.
    • Large DEF tanks reduce firms’ profits because they take up valuable trunk space and increase marginal production costs – 
      • Estimates show that consumers would be willing to pay around 284 euros if the space for an average DEF tank were instead allocated to additional trunk space
    • Choosing small DEF tanks jointly reduced the automakers' expected noncompliance penalties by at least 560 million euros.
    • Compared with various competitive scenarios, the alleged collusion is also beneficial for car buyers. However, those benefits to automakers and car buyers come at the cost of grave NOx damages.
    • Increased pollution damages outweigh the gains in industry profits and vehicle buyers' surplus.
    • Antitrust and noncompliance penalties would reach between 1.46 and 14.63 billion euros to remedy the welfare damages of the alleged collusion.
    • The automakers gained 0.68-5.04 billion euros in variable profits from this alleged collusion, with the existing regulatory regime predicted to have achieved at most 34-46% of the full remedial penalties.
    • The study also documents widespread noncompliance behaviour in the whole industry; more than 95% of diesel models with DEF tanks have tank sizes insufficient for compliance.

    These findings are essential to interpret the consequences of the alleged collusion in light of imperfect regulatory enforcement.


    • AREAS OF SPAIN THAT SUFFERED GREATER RELIGIOUS PERSECUTION DURING THE INQUISITION ARE TODAY MARKEDLY POORER, MORE RELIGIOUS, LESS EDUCATED, AND EXHIBIT LOWER TRUST   

    THE LONG RUN EFFECTS OF RELIGIOUS PERSECUTION: Evidence from the Spanish Inquisition
    Mauricio Drelichman, Jordi Vidal-Robert, Hans-Joachim Voth     
    CEPR Discussion Paper No. 16030 | April 2021

    What are the effects of 350 years of religious persecution, denunciations, interrogations, and intrusive thought control? New evidence on the Spanish Inquisition reveals that areas of Spain that suffered greater religious persecution today show lower economic performance, educational attainment, and trust. The long-run impact of religious persecution is …

    These are the main findings of a new CEPR study by Mauricio Drelichman, Jordi Vidal-Robert, Hans-and Joachim Voth, which investigates the long-run impact of religious persecution on economic performance, education, and trust, using information from over 67,000 trials held by the Spanish Inquisition between 1480 and 1820. This comprehensive new database reveals several findings: 

    • Areas strongly affected by the Inquisition’s activities between the 16th and 19th century are today markedly poorer, more religious, less educated, and exhibit lower trust.
    • 36 million Spaniards live in areas affected historically by the Inquisition; 8.1 million live in areas that have no recorded impact. 
    • For Spain as a whole the findings imply a reduction in per capita GDP thanks to the Inquisition of 2,000 € per capita.
    • Since the Inquisition was particularly suspicious of the educated, literate, and prosperous middle class, its impact on Spain’s cultural, scientific and intellectual climate was severe. This reduced incentives to become educated, to work hard and become rich, and to think for oneself. Reactions to religious pressure may well have become ingrained in local culture.
    • The prospect of secret denunciations by acquaintances in localities with a strong inquisitorial presence must have made it harder for residents to engage in communal life, co-operate, and share information – to solve collective action problems that facilitate municipal administration and economic activity. 
    • The long-term detrimental impact of the Inquisition operated through lower trust and education.

    The negative effect of the Inquisition suggests that adverse shocks at a critical juncture can trap societies in permanently low equilibria, where high local conflict, low education and limited trust lead to low income, with the risk of undermining social capital and trust still further.

    Figure 1: Inquisitorial intensity in Spain

    Note: The map gives values for inquisitorial intensity by municipality, for the period 1478-1834. Intensity is defined as the number of years a municipality experienced at least one inquisition trial divided by the number of years for which municipality-level data is available.


    • WOMEN CONTINUE TO BEAR BURDEN OF HOUSEWORK AND CHILDCARE DURING SECOND COVID-19 WAVE, DESPITE OVERALL REDUCTION IN DUTIES    

    Household Division of Labor During Two Waves of COVID-19 in Italy
    Daniela Del Boca, Noemi Oggero, Paola Profeta and Maria Cristina Rossi
    Issue 75 Covid Economics | 07 April 2021

    A new study by Daniela Del Boca, Noemi Oggero, Paola Profeta and Maria Cristina Rossi in CEPR’s Covid Economics, analyses the effects of the second wave of COVID-19 on working arrangements, housework and childcare using large survey data from working women in Italy. They also explore whether intra-family allocation of work and household duties has changed since the first wave of the pandemic. The results show that: 

    • The increased gender gap in the household division of labour during the first wave of COVID-19 pandemic persisted during the second wave. 
    • Women are spending an average of 2 more hours per day than men, a greater difference than in pre-COVID times.
    • The brunt of domestic chores and childcare remains on women even after accounting for different working arrangements. 
    • In fact, the amount of time women spend on housework, childcare, and home schooling is unaffected by their partners’ working arrangements. 
    • By contrast, men contribute fewer hours to housework and home schooling when their partners are at home. 
    • Even when working-from-home and/or non-working men devote more hours to domestic activities, the additional time spent at home does not seem to lead to a reallocation of couples’ roles in housework and childcare. 
    • The results also show that educational attainment plays a role and that women with higher levels of education express less concern about potential loss of earnings or pension coverage.

    The results show that the gap in household care related activities, which was exacerbated by the outbreak of the COVID pandemic, shows no sign of closing, despite the introduction of milder containment measures during the second wave. 



    COST-BENEFIT ANALYSIS AND THE COVID VACCINATION CAMPAIGN IN FRANCE

    Christian Gollier              
    09 April 2021

    The slow development of the vaccination campaign in continental Europe raises critical questions around who should be prioritised in the roll-out, the welfare costs of a delay, and the impact of ‘anti-vaxxers’ and vaccine nationalism.

    In this study, Christian Gollier uses an age-structured SIR model to addresses these issues with a focus on France. A doubling of the speed of vaccination France achieved in March could reduce deaths in 2021 by a third, while the presence of senior anti-vaxxers may imply around 5,000 additional deaths among the senior pro-vaxxer population (based on 30% of the population refusing the vaccine). Vaccine nationalism is estimated to increase the global death toll by 20%.  

     

    HIGH INFLATION AND BOND YIELDS ARE NOT A NATURAL CONSEQUENCE OF PANDEMICS 

    Kevin Daly, Rositsa D. Chankova                        
    15 April 2021

    The economic consequences of Covid-19 are often compared to a war, prompting fears of rising inflation and high bond yields. However, a study by Kevin Daly and Rositsa Chankova shows that historically, pandemics and wars have had diverging effects. 

    Using data extending to the 1300s to compare inflation and government bond yield behaviour in the aftermath of the world’s 12 largest wars and pandemics, the findings show that both inflation and bond yields typically rise in wartime but remain relatively stable during pandemics. Although every such event is unique, history suggests high inflation and bond yields are not a natural consequence of pandemics. 


    LATIN AMERICA AND THE CARIBBEAN AFTER COVID-19: Higher poverty levels, greater inequality, and debts across virtually all countries

    Eduardo Cavallo, Andrew Powell                    
    13 April 2021

    Latin America and the Caribbean suffered from several regional preconditions in advance of the Covid-19 crisis, including weak health infrastructure, low growth, and inefficient taxation. Now the pandemic threatens to leave the region with even higher poverty levels, greater inequality, and debts across virtually all countries.

    A new study by Eduardo Cavallo and Andrew Powell recognises the severity of these challenges but also provides reason to hope. If Covid-19 produces the political will to move the region towards better policy frameworks and execution, something positive could come of the crisis. 


    TO REDUCE OVERALL TRADE DEFICITS, COUNTRIES SHOULD USE FISCAL OR MONETARY POLICY: An obsession with unfair or unbalanced bilateral trade will achieve nothing

    Gabriel Felbermayr, Yoto Yotov                     
    14 April 2021

    Whether or not large bilateral trade imbalances are a signal of non-reciprocal (or ‘unfair’) trade costs has been the subject of debate for some time, and was brought to the fore during President Trump’s time in office.

    Writing at Vox, Gabriel Felbermayr and Yoto Yotov argue that if the trading partners’ average trade costs with the whole of the world are taken into account, then the ‘unfair trade’ argument does not hold up. The authors find that up to 88% of the variance in bilateral balances can be explained without making any reference to asymmetries in bilateral trade costs.


    NO EVIDENCE FIRMS BECAME INTERNATIONALLY COMPETITIVE DUE TO THE PREFERENTIAL ACCESS THEY ENJOYED FROM THE AFRICAN GROWTH AND OPPORTUNITY ACT

    Ana Fernandes, Alejandro Forero, Hibret Maemir, Aaditya Mattoo                         
    14 April 2021

    Can preferential access to foreign markets foster industrial development, particularly in Africa? Under the African Growth and Opportunity Act in 2001, the US allowed duty-free entry of apparel products from eligible African countries. However, the end of the Multi-Fiber Arrangement in 2005 re-exposed African countries to significant international competition from Asia.

    A study by Ana Fernandes, Alejandro Forero, Hibret Maemir and Aaditya Mattoo finds that countries in Southern Africa and firms in Kenya that boomed during the period of high initial trade preferences went bust when the Multi-Fiber Arrangement expired. Subsequent growth was driven by new countries, notably Ethiopia, and by new firms in Kenya. These results are consistent with the complementary role of domestic reforms rather than the ‘infant industry’ benefits of trade preferences alone.


    COVID-19 AND AGE DISCRIMINATION: Older workers may find it harder to find re-employment and may be more at risk of being fired 

    Gordon Dahl, Matt Knepper                   
    13 April 2021


     

    A study by Gordon Dahl and Matt Knepper finds that economic downturns increase the incidence of illegal age discrimination in the workplace. In light of the global recession caused by the COVID-19 pandemic, older workers may find it harder to gain re-employment in the aftermath of the economic downturn, and may be more at risk of being fired due to age-discrimination.

    The results broadly indicate that whatever power disparities exist between workers and employers appear to grow during recessions, allowing employers to engage in higher levels of discrimination.


    EMERGING MARKETS WILL BE SHAPED BY THE US AND CHINESE POLICY STANCES IN 2021 

    Robert Gilhooly, Carolina Martinez, Abigail Watt                  
    13 April 2021

    Writing at Vox, Robert Gilhooly, Carolina Martinez and Abigail Watt consider how the latest US fiscal package will interact with China’s policy normalisation and concludes that while President Biden’s American Rescue Plan should dominate a less expansionary stance in China, the boost to the global economy will be much more modest than one would typically expect. Specifically, the normalisation of goods consumption in developed markets and less import-intensive Chinese growth will curtail global goods trade, a key determinant of emerging market growth.


    THE MUNDELL DIFFERENCE

    Paul Krugman                        
    12 April 2021

    Nobel Laureate Robert Mundell passed away on 4 April 2021. In this column, Paul Krugman describes the evolution of Mundell’s contribution to economic thought and policy, from his early pathbreaking models that remain the foundation of modern international macroeconomics to his later views that were more controversial and less influential in the profession.

    He also offers an explanation of how the man who brought Keynesian analysis to the open economy and highlighted the difficult tradeoffs in creating a currency area could come to be seen as the father of both supply-side economics and the euro.


    HARMING THE OCEAN IMPACTS CHILDREN IN LOW- AND MIDDLE-INCOME COUNTRIES

    Alex Armand, Ivan Kim Taveras                         
    11 April 2021

    Climate change, together with industrial and habitat-destructive fishing, pollution, and coastal urbanisation, has led to a sustained decrease in fish stocks over the last decades. This is particularly relevant for low- and middle-income countries, as their populations are heavily reliant on fish for nutrition.

    Writing at Vox, Alex Armand and Ivan Kim Taveras presents new evidence of the effect of ocean acidification on early-childhood mortality in low- and middle-income countries. Small increases in exposure to water acidity while in utero have significant effects on neonatal mortality. A closer look at possible mechanisms highlight the role of the ocean for nutrition and how overfishing represents an additional threat.


    UNDERFUNDING OF NURSING HOMES IN SPAIN LINKED TO HIGHER DEATH RATES FROM COVID-19 

    Joan Costa-Font, Sergi Jiménez-Martín, Analía Viola              
    11 April 2021

    New evidence that understaffed, larger and busier care homes suffered higher rates of Covid mortality during the first wave of the pandemic. Coordination failures both between healthcare and long-term care and between central and regional governments also contributed.

    These are the findings of a new study by Joan Costa-Font, Sergi Jiménez-Martín and Analía Viola, which uses data from nursing homes in Spain during the first wave of the Covid pandemic to examine the relationship between indicators of underfunding and Covid mortality. 


    BREAKING BAD: New Evidence That Health Shocks Incite Crime 

    Steffen Andersen, Gianpaolo Parise, Kim Peijnenburg                  
    10 April 2021

    Receiving a cancer diagnosis can incite criminal activity according to new research from Denmark. The authors, Steffen Andersen, Gianpaolo Parise and Kim Peijnenburg, use data from the entire Danish population to show how changes in expectations about future income streams and life expectancy alter the economic incentive to commit crime. The probability of committing a crime increases on average by 13% following a cancer diagnosis. This effect is subdued in the immediate years after diagnosis but intensifies over time and persists for more than ten years.

    The study argues that social support should be made widely available to vulnerable segments of the population in the wake of the Covid health crisis, when even people with previously clean records could find themselves drawn into illegal behaviour. 


    Measuring human capital: Learning matters more than schooling

    Noam Angrist, Simeon Djankov, Pinelopi Goldberg, Harry Patrinos                   
    09 April 2021

    Human capital is a critical component of economic development. But the links between growth and human capital – when measured by years of schooling – are weak.

    This column introduces a better measurement, using a database that directly measures learning and represents 98% of the global population. The authors find that the link between economic development and human capital is strong when measured in this way. They also show that global progress in learning has been limited over the past two decades, even as enrolment in primary and secondary education has increased.


    HOW HIGH-SPEED RAIL CHANGES THE SPATIAL DISTRIBUTION OF ECONOMIC ACTIVITY: Evidence from Japan’s Shinkansen

    Kazunobu Hayakawa, Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse                    
    08 April 2021

    The economic and social consequences of investments in transport infrastructure are hotly debated because they typically involve costly investments that are supposed to yield high payoffs. Particularly telling examples of large transport infrastructure investments are investments in high-speed rail.

    Writing at Vox, Kazunobu Hayakawa, Hans Koster, Takatoshi Tabuchi and Jacques-François Thisse show that the Japanese network of high-speed railway lines – The Shinkansen - has had a substantial effect on Japan’s spatial distribution of employment, and has increased welfare by 6.5%. Tokyo and Kyoto-Osaka would likely be 6.5% larger.


    POLLUTION-INDUCED MIGRATION IN CHINA 

    Gaurav Khanna, Wenquan Liang, Ahmed Mushfiq Mobarak, Ran Song                    
    08 April 2021

    Severe pollution can motivate workers to relocate from productive areas, even it means wage reductions. However, migration costs make it difficult for less-skilled workers to move with their college-educated counterparts, and the flight of college-educated workers is a further detriment to those left behind.

    A study by Gaurav Khanna, Wenquan Liang, Ahmed Mushfiq Mobarak and Ran Song uses data from China to document how mobility costs – both physical and imposed by hukou policy – exacerbate these economic losses and show migration and pollution control policies are interlinked. This evidence directly speaks to the tensions between environmental regulation and urbanisation in the developing world. Pollution control, coupled with policies facilitating migration, has the potential to bring about extra economic gains in developing countries.


    PANDEMICS MAKE US MORE AVERSE TO INEQUALITY: Evidence from Italy, Germany, and the UK

    Miqdad Asaria, Joan Costa-Font, Frank Cowell                     
    15 April 2021

    Survey evidence from Italy, Germany, and the UK reveals that the COVID-19 crisis has had an important impact on people’s feelings towards income inequality and health inequality. The pandemic is making people more inequality averse, especially if they have not been directly affected by COVID-19 themselves. Hence, the characteristics and experiences of risk in the household matter significantly for the impact of a pandemic on its preferences pertaining to inequality.



    Government rules or fear of COVID? Which had more impact on economic activity?

    Colombe Ladreit interviewed by Tim Phillips, 06 April 2021

    Colombe Ladreit (Bocconi University) talks to Tim Phillips about her research with Laurence Boone that finds that government restrictions affected mobility in advanced OECD economies much more than fears of COVID-19 infection. This effect is more visible during the first wave than during the second.