This week from CEPR: February 18

Thursday, February 18, 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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    Jose-Luis Cruz, Esteban Rossi-Hansberg
    CEPR DP No. 15803  | February 2021

    Global warming will likely cause wide-ranging economic impacts across the globe, with predicted welfare losses as large as 15% in parts of Africa and Latin America but also high heterogeneity across locations, with northern regions in Siberia, Canada, and Alaska experiencing gains.

    A new CEPR study by Jose-Luis Cruz and Esteban Rossi-Hansberg introduces a novel global spatial dynamic assessment model to assess the impact of carbon emissions, and the implied changes in temperatures, on the world economy and on the economy of particular regions. The study also quantifies the effect of carbon taxes, abatement technologies, and clean energy subsidies. Among the findings: 

    • On average, the world is expected to lose 6% in terms of welfare.
    • The hottest regions in South America, Africa, India and Australia experience welfare losses of 15%.
    • The coldest regions in Alaska, Northern Canada, and Siberia undergo welfare gains as high as 14%.
    • The results indicate large uncertainty about average welfare effects and point to migration and, to a lesser extent, innovation as important adaptation mechanisms. 
    • Clean energy subsidies have only a modest effect on carbon emissions and the corresponding evolution of global temperature since, although they generate substitution towards clean energy, they also lead to a reduction in the price of energy which results in more production and ultimately more energy use.
    • Carbon taxes delay consumption of fossil fuels and help flatten the temperature curve but are much more effective when an abatement technology is forthcoming.

    Global warming presents a daunting challenge for humanity. Designing the best tools to address it requires modern micro-founded economic models that incorporate multiple forms of adaptation and the rich spatial heterogeneity of the world.

    • WHOM TO VACCINATE FIRST? Some important trade-offs   

    Whom to Vaccinate First - Some Important Trade-offs
    Rikard Forslid, Mathias Herzing      
    CEPR DP No. 15800  | February 2021

    The rapid development of vaccines against COVID-19 and the quick ramping up of production facilities has been unprecedented. However, vaccines also need to be distributed and administered to susceptible individuals. This is an important logistical challenge and also raises the question of whom to vaccinate first. With the exception of front-line health care workers, most countries start with the older and most fragile part of the population.

    However, there is also the alternative strategy to first vaccinate a younger part of the population, which is primarily responsible for spreading the virus, in order to quickly reduce the number of infected. This reduction in the transmission of the infection could in principle result in fewer deaths in the long run also among the elderly.

    A new CEPR paper by Rikard Forslid and Mathias Herzing models the current pandemic to analyse vaccination strategies in a setting with three age groups that differ with respect to their fatality rates. The model also accounts for heterogeneity in the transmission rates between and within these age groups. The study compares the outcomes in terms of the total number of deceased, the total number of infected, the peak infection rate and the economic consequences.

    The results show that fatalities are almost always minimized by first vaccinating the elderly, except when vaccination is slow and the general transmission rate is relatively low. In this case deaths are minimized by first vaccinating the middle-aged as this group is responsible for substantial spreading of the virus to the elderly. With regard to the other outcome variables it is always best to vaccinate the middle-aged group first. A trade-off may therefore emerge between reducing fatalities on the one hand and lowering the number of infected as well as maximizing the economic gains from vaccinations on the other hand.


    Selim Gulesci, Manuela Puente Beccar, Diego Ubfal
    CEPR DP No. 15808 | February 2021

    A new study by Selim Gulesci, Manuela Puente Beccar and Diego Ubfal reveals how a youth empowerment programme in Bolivia, which offered training in soft skills and technical skills, sexual education, mentoring and job-finding assistance, is found to significantly reduce the prevalence of violence against girls during the COVID-19 lockdown. Among the findings:

    • The study follows vulnerable youth across four cities in Bolivia. 
    • The programme significantly reduced violence experienced by girls, but not for boys. 
    • The programme had a positive effect on earnings for girls, but not for boys.
    • This is consistent with an improvement in girls’ bargaining power within the household or a reduction in income-related stress, both of which may explain the decrease in violence against girls.
    • The programme may have diminished violence by lowering exposure to the abusers. 
    • Another alternative mechanism could be improvements in girls’ knowledge of and access to support services. Their abusers may have also become more aware of girls’ improved access to support in case of violence.

    Economic crises, conflicts and natural disasters are often linked to increased prevalence of violence against women and children, these findings suggest that empowerment programmes can reduce the level of violence experienced by young females during high-risk periods.


    Maarten Verwey, Milan Vyskrabka, Philipp Pfeiffer             
    15 February 2021

    Writing at Vox, European Commission economists Maarten Verwey, Milan Vyskrabka and Philipp Pfeiffer describe the optimistic and pessimistic model-based scenarios for the EU economy forecast by the European Commission. Among the findings:

    • The breakthroughs in vaccine development in the autumn of 2020 and the start of mass vaccination campaigns in 2021 brightened the near-term outlook for the EU economy. 
    • However, hopes of a quick recovery have, to some extent, been overshadowed by the recent resurgence of the pandemic. 
    • The importance of vaccinations for the EU’s economic trajectory cannot be understated. Effective vaccines and their quick roll-out could add about three percentage points to annual growth of the EU this year. 

    THE COST OF POPULISM: Evidence from history

    Manuel Funke, Moritz Schularick, Christoph Trebesch                  
    16 February 2021

    A study by Manuel Funke, Moritz Schularick and Christoph Trebesch uses a comprehensive cross-country database on populism dating back to 1900 to offer a historical, long-run perspective its economic and political consequences, which suggests that populism is here to stay. It shows that 

    1. Populism has a long history and is serial in nature – if countries have been governed by a populist once, they are much more likely to see another populist coming to office in the future. 
    2. Populist leadership is economically costly, with a notable long-run decline in consumption and output. 
    3. Populism is politically disruptive, fostering instability and institutional decay. 


    Cem Çakmaklı, Selva Demiralp, Sebnem Kalemli-Ozcan, Sevcan Yesiltas, Muhammed A. Yıldırım                
    15 February 2021

    Writing at Vox, Sebnem Kalemli-Ozcan and colleagues calculate the global economic costs from the absence of an equitable distribution of vaccines, with a focus on international trade and production linkages.

    The results indicate that under the scenario where advanced economies are vaccinated universally within four months in 2021 but only 50% of the population is vaccinated in emerging markets and developing economies by early 2022, the global economic costs might be as high as $3.8 trillion. Up to 49% of these costs are borne by advanced economies.

    The findings demonstrate the importance of making the vaccine globally available, not from a moral standpoint but from an economic one, by illustrating the large economic costs in the absence of global vaccinations. Ironically, a significant portion of these costs will be borne by the advanced countries, despite the fact that they might vaccinate most of their citizens by the summer of 2021.

    PUBLC DISCONTENT WITH GOVERNMENT DECISISONS DURING THE PANDEMIC: Does this reflect a sense of government unpreparedness in Italy? 

    Massimiliano Ferraresi, Gianluca Gucciardi               
    12 February 2021

    New findings suggest suggest a public ‘discontent’ with the policy decisions of the central government in Italy, which might reflect a sense of a lack of government preparedness against the pandemic. More specifically, if policies adopted by the central government are unpopular or if there is an impression of a lack of government preparedness against the pandemic, such a (negative) perception is exacerbated in cities whose mayor shares the same political affiliation as the central government.

    Writing at Vox, European Commission economists Massimiliano Ferraresi and Gianluca Gucciardi examine the change in policy decisions induced by the pandemic that led to centralised decision-making in Italy, and investigate the difference between cities politically aligned and non-aligned with the central government before the pandemic, when municipalities enjoyed the usual discretion in policy decisions, and after the COVID-19 outbreak, when decisions were centralised. 

    ANOTHER DISINFLATIONARY FORCE VANISHES: The tightening of bank equity capital regulation

    Hans Gersbach                 
    18 February 2021

    Since the financial crisis of 2007/08, bank equity regulation has been tightened. This is one reason why broad money supply reacted only weakly to the enormous expansion of the monetary base. Writing at Vox, Hans Gersbach argues that the process of tightening bank equity regulation has come to an end and will not have the same disinflationary effects after the pandemic. The large reserve balances held by banks may become a greater concern and pose larger inflation risks in the years to come.  


    Christine Blandhol, Magne Mogstad, J Peter Nilsson, Ola L. Vestad           
    13 February 2021


    Worker representation on corporate boards has gained popularity as a way to promote the workers’ interests, but does the practice lead to greater gains for employees? A study by J Peter Nilsson and colleagues uses data from Norway spanning a decade, to show that: 

    • Workers are paid more and face less earnings risk if they work in firms with worker representation on the board.
    • However, these benefits can be entirely explained by firm size and the share of unionised workers. 
    • While workers may benefit from being employed in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.


    Alison Andrew, Orazio Attanasio, Britta Augsburg, Jere Behrman, Monimalika Day, Pamela Jervis, Costas Meghir, Angus Phimister             
    17 February 2021

    Despite the importance of female networks, many women worldwide face substantial barriers to creating and maintaining social connections.

    A new study by Orazio Attanasio and colleagues examines new mothers’ social networks in rural Odisha, an eastern state in India, and finds that young mothers tend to be extremely isolated, with potentially important consequences for mental and physical wellbeing, access to services, and maternal empowerment. The networks that exist display strong negative socioeconomic status gradients, with dominant-caste and wealthier women being much more isolated than their lower-status peers.

    WORKING FROM HOME: Too much of a good thing?

    Kristian Behrens, Sergey Kichko, Jacques-François Thisse                
    13 February 2021

    Working from home saves time that would be spent commuting but deprives firms of the benefits from information and knowledge spillovers. Firms use less office space, but workers require more space at home. Overall, GDP will likely be maximised when working from home occurs one or two days per week.

    These are the main findings of a study by Kristian Behrens, Sergey Kichko and Jacques-François Thisse, which usess a general equilibrium model to analyse the long-term effects of the growing trend towards telecommuting brought about by the Covid-19 pandemic. 


    Karen Eggleston, Yong Suk Lee, Toshiaki Iizuka                 
    17 February 2021

    Writing at Vox, Karen Eggleston, Yong Suk Lee and Toshiaki Iizuka reports on one of the first studies of service sector robots, which suggests that robot adoption has increased some employment opportunities, provided greater flexibility, and helped to mitigate turnover problems among long-term care workers. The wave of technologies that inspires fear in many countries may be a remedy for the social and economic challenges posed by population ageing in others.


    Philip Hanspach, Virginia Sondergeld, Jess Palka          
    15 February 2021

    Women economists remain underrepresented in leadership positions across the academic world as well as in the private and public sectors. A study by Philip Hanspach, Virginia Sondergeld and Jess Palka uses data from the 2020 edition of the Women in Economics Index (WiE) to document imbalances in the profession’s gender distribution, discuss what those imbalances reveal about the state of the profession broadly, and emphasise the importance of equal opportunity to the field’s future. Removing barriers in economics will not only facilitate workplace fairness but may also improve outcomes.


    Marta Giagheddu, Andrea Papetti            
    16 February 2021

    Policymakers can limit the Covid-19 death toll at a lower economic cost using age-specific containment measures which focus on limiting social interactions between the elderly and the young to a much stricter extent.

    In this study, Marta Giagheddu and Andrea Papetti add an economic dimension to a standard epidemiological framework to examine the role of age-specific socioeconomic interactions and different containment measures on the spread of COVID-19 and its impact on the macroeconomy. The analysis suggests that it would be optimal to differentiate containment measures by age in order to limit the spread of COVID-19.

    SUPRANATIONAL RULES, NATIONAL DISCRETION: Increasing versus inflating regulatory bank capital

    Reint Gropp, Thomas Mosk, Steven Ongena, Ines Simac, Carlo Wix                 
    14 February 2021

    The implementation of supranational regulations at the national level often provides national authorities with substantial room to engage in discretion and forbearance.

    Using evidence from a supranational increase in bank capital requirements, a study by Steven Ongena and colleagues shows that national authorities may assist banks' efforts to inflate their regulatory capital to pass such supranational requirements. While supranational rules should be binding in theory, national discretion may effectively undermine them in practice.


    Samuel Delpeuch, Etienne Fize, Philippe Martin                
    12 February 2021

    A new study by Samuel Delpeuch, Etienne Fize and Philippe Martin reveals that both bilateral and multilateral trade imbalances are strong predictors of protectionist attacks, partly – but not entirely – driven by the United States and the Trump years.

    Moreover, countries with more expansionary fiscal policies react to the ensuing trade imbalance by a more protectionist trade policy. A transatlantic gap in the fiscal response to the COVID crisis may therefore pave the way to renewed trade tensions.


    Stefano Corradin, Marie Hoerova, Glenn Schepens                  
    12 February 2021

    Writing at Vox, Stefano Corradin, Marie Hoerova and Glenn Schepens discuss the interaction between money markets, new Basel III regulations, and central bank policies. The analysis shows that money market conditions worsen when financial stress increases, or if central bank asset purchases induce scarcity effects. It outlines implications of changing money market conditions for monetary policy implementation and transmission.

    WHY ARE THERE SO MANY ANTI-APPERS? Digital trust and contact tracing

    Michael Kende interviewed by Tim Phillips, 16 February 2021

    Michael Kende (Graduate Institute) talks to Tim Phillips about the lack of digital trust in contact tracing apps which could help control the pandemic, save lives, and normalise our societies and how this is a major wake-up call.