This week from CEPR: July 29

Thursday, July 29, 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


    • CARBON TAXES HAD DEFLATIONARY, RATHER THAN INFLATIONARY EFFECTS: Evidence from Europe and Canada 

    CARBON TAXATION AND INFLATION: Evidence from the European and Canadian Experience
    Maximilian Konradt, Beatrice Weder di Mauro 
    CEPR Discussion Paper No. 16396 | July 2021 

    Model-based studies on the effect of carbon taxation point to sizeable inflationary effects. A new CEPR paper by Maximilian Konradt and CEPR President Beatrice Weder di Mauro uses evidence from Canada and Europe over the past three decades to show that carbon taxes changed relative prices but did not increase the overall price level. Instead, they were slightly deflationary. 

    In particular, the evidence suggests that the increase in energy prices was more than offset by a fall in the prices of services and other non-tradables. These results are robust for Europe and Canada, as well as a number of different country groupings. 

    In the case of British Columbia, the driver may have been a fall in household income depressing the prices of non-energy goods, which more than offset rising energy prices. The income compression was most pronounced among the richest households, suggesting that the redistribution scheme achieved its intended aim of favouring low-income households.

    Even though the analysis provides no support for an inflationary effect, deflation is equally undesirable and central banks still have to pay close attention to carbon pricing and taxation. Moreover, the absent reaction of monetary policy in most jurisdictions that introduced carbon taxes might have contributed to the deflationary outcome in the first place. No doubt, further research will be needed to draw the broader implications of carbon price shocks for optimal monetary policy responses.

    Read an accompanying VoxEU column here


    • MENTAL HEALTH DISORDERS CARRY ENORMOUS ADVERSE CAREER EFFECTS: Evidence from Denmark suggests that access to treatment is crucial

    CAREER EFFECTS OF MENTAL HEALTH
    Barbara Biasi, Michael S Dahl, Petra Moser
    CEPR Discussion Paper No. 16401 | July 2021

    A new CEPR paper by Barbara Biasi, Michael S Dahl and Petra Moser investigates the career effects of mental health, focusing on depression, schizophrenia, and bipolar disorder (BD). The authors used detailed, individual-level registry data from Denmark show that:

    • Mental health disorders carry large earnings penalties, ranging from 34% for depression and 38% for BD to 74% for schizophrenia. 
    • People with mental health conditions are also substantially more likely to decline into the bottom quantiles of earnings or have no earnings at all.
    • Earnings decline dramatically after a diagnosis of depression, BD, and schizophrenia. 
      • Earnings begin to recover two years after a diagnosis, but never return to their pre-diagnosis levels. Ten years after the diagnosis, people with depression, BD, and schizophrenia earn 9, 23, and 31% less, respectively, relative to their pre-diagnosis earnings.
      • Earnings begin to decline four years before a diagnosis consistent with people experiencing symptoms that reduce their ability to work or with job loss triggering a mental health episode.
    • Mental health symptoms could impact a person’s ability to work directly, leading to the loss of income. In addition, the scarring effects of unemployment may further reduce earnings and job security. Although earnings penalties are more likely to be driven by mental health symptoms that make people unable to work, rather than by the scarring effect of unemployment.
    • Access to treatment massively improves impact of penalties. 
      • Access to treatment closed one third of the earnings penalties from BD compared with the population and 44% compared with siblings. 
      • It also greatly reduces the risks of low or no earnings. 
      • Moreover, it eliminates 59% of the excess risk of disability compared with the population and 57% compared with siblings.
    • Parental wealth plays an important role in shaping the career impact of mental health, and that people whose parents are less wealthy benefit most from access to treatment. 

    These results imply that policies that expand access to mental health treatments could create major economic and social benefits by increasing earnings, reducing the risk of low earning, and mitigating the risk of disability. The authors suggest that such changes have major welfare effects: Access to treatment could save $88 million in wages.


    • THE ECONOMIC COSTS OF CHILD MALTREATMENT IN UK

    The Economic Costs of Child Maltreatment in UK
    Gabriella Conti, Mariya Melnychuk, Steve Morris, Elena Pizzo     
    CEPR Discussion Paper No. 16397 | July 2021

    Child maltreatment has long-lasting effects on mental health, drug and alcohol use, risky sexual behaviour, obesity and crime, with high costs for both the individual and the society. A new CEPR paper by Gabriella Conti, Mariya Melnychuk, Steve Morris and Elena Pizzo quantifies, for the first time, the economic costs of fatal and non-fatal child maltreatment in the UK in relation to several short-, medium-, and long-term outcomes ranging from physical and mental health problems, to labour market outcomes and welfare use. 

    The authors use rich data from the National Child Development Study and the English Longitudinal Study of Ageing to produce an incidence-based estimate of the lifetime costs of child maltreatment from a societal perspective. Among the findings: 

    • The discounted average lifetime incidence cost of non-fatal child maltreatment by a primary caregiver is estimated at £89,390 (95% uncertainty interval £44,896 to £145,508).
    • The largest contributors to this are costs from social care, short-term health and long-term labour market outcomes. 
    • The discounted lifetime cost per death from child maltreatment is estimated at £940,758, comprising health care and lost productivity costs. 

    These estimates provide the first comprehensive benchmark to quantify the costs of child maltreatment in the UK and the benefits of interventions aimed at reducing or preventing it.

    Child Maltreatment defined as: All forms of physical and/or emotional ill-treatment, sexual abuse, neglect or negligent treatment or commercial or other exploitation, resulting in actual or potential harm to the child’s health, survival, development or dignity in the context of a relationship of responsibility, trust or power.



    LET ME WORK FROM HOME, OR I WILL FIND ANOTHER JOB

    Jose Maria Barrero, Nicholas Bloom, Steven Davis   
    27 July 2021

    How do employers bring employees back to the office? A study by Jose Maria Barrero, Nicholas Bloom and Steven Davis finds that four in ten Americans who currently work from home at least one day a week would seek another job if employers require a full return to business premises, and most workers would look favourably on a new job that offers the same pay with the option to work from home two or three days a week. High rates of quits and job openings in recent months appear to partly reflect a re-sorting of workers based on the scope for remote working.  

     

    HOW LEGALISING SAME-SEX MARRIAGE IMPROVES MENTAL HEALTH: Evidence from the Netherlands

    Shuai Chen, Jan van Ours 

    24 July 2021

    A study by Shuai Chen and Jan van Ours shows that this legislation of same-sex marriage in the Netherlands improved the mental health of both married and non-married sexual minorities. It is also likely to have improved societal tolerance of same-sex partnerships, impacting the discrimination experienced by sexual minorities.

    Marriage itself was only partially responsible for the amelioration of mental health among sexual minorities. More importantly, the legal recognition of same-sex marriage improved mental health for both male and female sexual minorities irrespective of their own marital status.


    THE IMPOVERISHMENT OF NEWSPAPERS AND ITS CONSEQUENCES

    Milena Djourelova, Ruben Durante, Gregory J. Martin                           
    25 July 2021

    How has declining advertising revenues, due largely to competition from online platforms, impacted the organisation and content of newspapers and the information local readers are exposed to? 

    To shed light on these questions a study by Milena Djourelova, Ruben Durante and Gregory J. Martin looks at the staggered introduction of Craigslist – the world’s largest platform for classified ads – in the US. The results show that the entry of Craigslist in a market led to considerable staff cuts by local newspapers, a decline in news coverage of politics, and a drop in readership. These changes also had electoral consequences, favouring partisan voting and ideologically extreme candidates.


    EXPERTS UNANIMOUS IN SUPPORT OF A CENTRAL BANK DIGITAL CURRENCY FOR THE UNITED KINGDOM

    Lucile Crumpton, Ethan Ilzetzki                           
    26 July 2021

    Survey results from a panel of CfM of experts on the UK economy agree almost unanimously that a Bank of England-issued digital currency would benefit the British economy. Half of the panel also believed that a digital currency would have limited impact on the UK banking system. 


    NEW DATASET SHEDS LIGHT ON HOMELESSNESS IN THE UNITED STATES

    Kevin Corinth, Bruce Meyer, Angela Wyse                               
    21 July 2021

    Data on the US homeless population are sorely lacking, leaving key questions about their number, deprivation and mobility unanswered. Writing at Vox, Kevin Corinth, Bruce Meyer and Angela Wyse introduce a new dataset that sheds new light on these questions by linking a census of the entire US homeless population with administrative tax and government programme data. 

    One of the main findings is that while many homeless individuals work and the vast majority are connected to the social safety net, they nonetheless fail to see improvements in economic wellbeing over more than a decade.


    THE HISTORICAL PRESENCE OF THE INCA ROAD IMPROVED EDUCATIONAL, DEVELOPMENT, AND LABOUR OUTCOMES IN SOUTH AMERICA

    Ana Paula Franco, Sebastian Galiani, Pablo Lavado                        
    29 July 2021


     

    The Inca Road has been a linchpin of the colonial economy in the New World, but what is its impact on current development? Writing at Vox, Ana Paula Franco, Sebastian Galiani and Pablo Lavado examine the impact of the road on today’s educational, development, and labour outcomes. 

    They find that proximity to the Inca Road increased the average level of educational attainment and decreased stunting among children by 5%. It boosted average hourly wages by 20% and reduced informality by six percentage points. Moreover, these effects were around 40% greater among women.


    THE DOLLAR, THE YEN, OR THE RENMINBI? Invoicing currency choices by Japanese overseas subsidiaries

    Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, Taiyo Yoshimi                    
    23 July 2021

    The currency a firm chooses to invoice in reveals lessons on the prominence of that currency in the international sphere. A study by Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu and Taiyo Yoshimi presents survey data from Japanese overseas subsidiaries, highlighting how the use of Asian currencies has been growing steadily. 

    The authors show that among Asian local currencies, Chinese renminbi and Thai baht are the most used currencies by Japanese subsidiaries. If these countries become increasingly important destination markets for regional countries, local currencies will be used more as trade invoice currency in Asia.
     


    HOW TO PUNISH CORPORATE ENVIRONMENTAL VIOLATIONS: The merits of in-kind settlements

    Pamela Campa, Lucija Muehlenbachs                              
    22 July 2021

    Every year in the US around 5,000 cases are brought against defendants for violating federal environmental statutes, with defendants given the opportunity to volunteer ‘Supplemental Environmental Projects’ in lieu of a cash penalty. What are the implications of such in-kind settlements for firms and communities? 

    A study by Pamela Campa and Lucija Muehlenbachs uses data from US federal environmental cases between 1997 and 2017 to show that on economic grounds, the use of Supplemental Environmental Projects is beneficial and worth continuing and that, as recommended by the OECD, environmental agencies worldwide could fruitfully use in-kind settlements.


    COULD ‘CARBON SHARES’ LIMIT EMISSIONS MORE EFFECTIVELY THAN CARBON PRICING? 

    Derek Lemoine                             
    28 July 2021

    If we are to limit warming to internationally agreed-upon targets such as 1.5 or 2 degrees Celsius, global emissions need to not just to be zeroed out over the next decades but to become negative. If that happens, the world will actually be pulling more carbon out of the air than it puts in. However, carbon pricing, which is usually recommended as the best policy, cannot achieve negative emissions without massive government spending. Writing at Vox, Derek Lemoine argues that ‘carbon shares’ could do as well as carbon pricing at limiting emissions while also properly incentivising negative emissions.

    Whereas standard policies require substantial information on the part of the government to figure out the proper tax or cap on emissions, this new policy requires only simpler calculations that could be updated annually in a similar way to GDP and inflation estimates.


    TRADE AND INNOVATION

    Marc Melitz, Stephen Redding                               
    28 July 2021

    International trade is a key determinant of firm profitability and survival, so it is natural to expect it to influence both incentives to innovate and the rate of creative destruction. Writing at Vox, Marc Melitz and Stephen Redding highlight four key mechanisms through which international trade affects endogenous innovation and growth: 

    1. market size 
    2. competition 
    3. comparative advantage 
    4. knowledge spillovers 

    Each of these mechanisms offers potential static and dynamic welfare gains. Discriminating between alternative mechanisms for these dynamic welfare gains and strenthening the evidence on their quantitative magnitude remain exciting areas of ongoing research.


    DOLLARS AND EXPORTS: The effects of currency strength on international trade

    Valentina Bruno, Hyun Song Shin                               
    27 July 2021

    A new study by Valentina Bruno and Hyun Song Shin examines the effects of the dollar on international trade, with a particular focus on exports. The authors find that:

    • A strong dollar dampens trade volumes through the financial channel, outweighing any improvement in trade competitiveness.
    • Trade activity is strong when the dollar is weak, but global trade suffers when the dollar is strong.

    NON-BANK FINANCIAL INTERMEDIATION: The case for a macroprudential framework

    Maurizio Trapanese                               
    26 July 2021

    The policy framework developed so far on non-bank financial intermediation has been based mainly on microprudential tools, looking at individual institutions and activities. Writing at Vox, Maurizio Trapanese argues that the effectiveness of these tools could be strengthened if they are accompanied by a comprehensive framework to control systemic risk. 

    This framework could be built around determining the correct pricing of backstops, resolving the trade-off between systemic risk and intermediation costs, mitigating the risk of runs on money market funds, resolving the agency problems in some non-bank financial intermediation transactions, and enhancing the stress test tools. 



    THE IMPACT OF COVID-19 ON ARTISTIC INCOME

    Alexander Cuntz interviewed by Tim Phillips, 27 July 2021

    As Covid-19 closed concert halls, galleries, and theatres it cut off the incomes of the people who worked in them. One year on, what has been the effect of the pandemic on artistic income? Alexander Cuntz of the World Intellectual Property Organisation has used unique incomes data from Germany to estimate how incomes have been affected, and how important states support has been for artists.



    DOES ECONOMICS DO ENOUGH RACE-RELATED RESEARCH?

    Imran Rasul interviewed by Tim Phillips, 23 July 2021

    Imran Rasul tells Tim Phillips about new research that shows the fraction of published economics research devoted to the causes and consequences of racial inequality is much smaller than in political science or sociology - and that this inequality has been getting worse.
    Read more here:
    CEPR Discussion Paper, DP DP16115 Race-related Research in Economics and Other Social Sciences by Arun Advani, Elliott Ash, David Cai, and Imran Rasul.
    VoxColumn: Economics and the study of race, Arun Advani, Elliott Ash, David Cai, and Imran Rasul