This week from CEPR: March 12
Thursday, March 12, 2020
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
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EFFECTS OF PASSIVE SMOKING ON CHILDREN’S DEVELOPMENT: Historical evidence from Italy
EFFECTS OF PASSIVE SMOKING ON PRENATAL AND INFANT DEVELOPMENT: Lessons from the Past
Carlo Ciccarelli, Gianni De Fraja, Daniela Vuri
CEPR DP No. 14471 05 March 2020
A new CEPR study by Carlo Ciccarelli, Gianni De Fraja and Daniela Vuri reveals that exposure to passive smoking of yet-to-be-born and very young children has a strong negative effect on their height as adults.
The study analyses rich historical data from Italian provinces, 1855 to 1910, to determine the effect of being exposed to passive smoking in one’s first year of life on one’s height as adult. In 19th century Italy, the effects of smoking on health were not known, and tobacco was not an inferior good. This allows the authors to disentangle the effect on foetuses and infants of smoking from that of other indicators of social and economic conditions.
The datasets record precise information on the per capita consumption of tobacco products, the heights of twenty-year old conscripts in the second half of the 19th century Italy, and other relevant controls. The results show a strong negative effect of smoking in the period before and after birth on height at age 20.
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CYBER RISK: A new approach to quantifying, reducing and insuring based on UK evidence
A NEW APPROACH TO QUANTIFYING, REDUCING AND INSURING CYBER RISK: Preliminary Analysis and Proposal for Further Research
Shalom Bublil, Neil Gandal, Michael Riordan
CEPR DP No. 14461 | 03 March 2020
What is the relationship between vulnerabilities, preventive measures, and security incidents, like the leaking of sensitive data (say credit card information) to the web? Little if anything is known about the relationships among these variables and no one has examined this issue empirically at the level of the firm.
A new CEPR study by Shalom Bublil, Neil Gandal and Michael Riordan, assembles a unique cross-sectional data set on 1,000 small and medium-size firms in the UK, which includes information on vulnerabilities, attempted email attacks, incidents (breaches), precautions (security measures.) and firm characteristics. Among the findings:
- Even in 2016, 25% of the personal computers in the world had no basic protection from viruses and malware.
- Relative to cyber risk, there are a dearth of cyber insurance policies.
- Only around one third of US companies have purchased some sort of cyber insurance. In the case of Europe, the numbers are much smaller.
- Most cyber-attacks are still based on well-known attacker strategies, such as phishing email attacks, in which a user is tricked into clicking a malicious link.
- There is a mean loss per cyber incident of €36.8 million.
The study show that there is a large ‘disconnect’ between acknowledgement of the problem of cyber risk for the global economy and society, and actions taken to address the problem. This leaves a huge part of the digital economy dangerously unprotected. The researchers show that it is possible to defend against attack strategies.
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TAXPAYERS RESPOND POSITIVELY TO PUBLIC DISCLOSURE AND SOCIAL RECOGNITION PROGRAMMES: Evidence from Pakistan
HOW DO TAXPAYERS RESPOND TO PUBLIC DISCLOSURE AND SOCIAL RECOGNITION PROGRAMS? Evidence from Pakistan
Joel Slemrod, Obeid Ur Rehman, Mazhar Waseem
CEPR DP No. 14463 | 04 March 2020
A new CEPR study by Mazhar Waseem and colleagues finds that public disclosure and social recognition programmes lead to strong compliance responses by taxpayers in Pakistan. The results suggest that such programmes can be important policy levers to mobilise resources, especially in economies with weak enforcement capacity.
Pakistan began revealing income tax paid by every taxpayer in the country from 2012. Simultaneously, another programme began recognising and rewarding the top 100 tax-paying corporations, partnerships, self-employed individuals and wage-earners. The authors examine these programmes to see if the public disclosure of tax information and social recognition of top taxpayers promote tax compliance. Among the findings:
- The public disclosure caused on average a 9 log-points increase in the tax paid by individuals exposed to the programme relative to the unexposed.
- The increase was larger the more intense was the exposure to the programme.
- The social recognition of top taxpayer also induced a substantial response.
- The tax liability reported by treated taxpayers in the neighbourhood of the programme threshold went up by approximately 17 log-points.
- The average effect was largely driven by taxpayers for whom the reputational concerns from tax payments were first-order.
The authors conclude that fear of detection and punishment as well as shame and pride may, in some settings, be meaningful determinants of behaviour that economic models need to take into account. From a policy standpoint, the results show that public disclosure and social recognition of top taxpayers can be effective enforcement instruments. These programmes cost few resources, and therefore can be a cost-effective complement to other more costly measures that governments undertake to deter non-compliance.
COVID-19: Europe needs a catastrophe relief planAgnès Bénassy-Quéré, Ramon Marimon, Jean Pisani-Ferry, Lucrezia Reichlin, Dirk Schoenmaker, Beatrice Weder di Mauro |
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The unfolding coronavirus epidemic represents a severe economic stress test for Europe as well as a test of European unity. Agnès Bénassy-Quéré, Ramon Marimon, Jean Pisani-Ferry, Lucrezia Reichlin, Dirk Schoenmaker and CEPR President Beatrice Weder di Mauro discuss how the crisis might unfold and the appropriate policy response. They advocate a comprehensive emergency package through which the EU would take responsibility for a meaningful share of the overall emergency effort. |
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WOMEN IN THE ECONOMICS PROFESSION: A new eBookShelly Lundberg |
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Shelly Lundberg introduces a new Vox eBook in which leading experts on the issue of gender in economics examine the role and progress of women in professional economics, review the barriers women face at various stages of the training and promotional pipeline, evaluate programmes designed to support and encourage female economists, and discuss the benefits of greater gender equality across economics research professions. Available for free download here >>> |
OIL PRICE WARS IN A TIME OF COVID-19Rabah Arezki, Rachel Yuting Fan |
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A combination of supply and demand shocks have sent oil prices plunging and financial markets tumbling. Rabah Arezki and Rachel Yuting Fan argue that if the decline in oil prices persists, it will erode the fragile macroeconomic and social stability of countries, especially in the Middle East and North Africa, that have been hit by the novel coronavirus. |
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CORONAVIRUS AND MACROECONOMIC POLICYLuca Fornaro, Martin Wolf |
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The consensus is that the coronavirus outbreak will cause a negative supply shock to the world economy, by forcing factories to shut down and disrupting global supply chains. Luca Fornaro and Martin Wolf develop a simple model to show that the spread of the coronavirus might cause a demand-driven slump, give rise to a supply-demand doom loop and open the door to stagnation traps induced by pessimistic animal spirits. Drastic policy interventions – both monetary and fiscal – might be needed to prevent the negative supply shock triggered by the coronavirus spread from severely affecting employment and productivity. |
ARTIFICIAL INTELLIGENCE AS A CENTRAL BANKER: Pros and consJon Danielsson, Robert Macrae, Andreas Uthemann |
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Artificial intelligence, such as the Bank of England Bot, is set to take over an increasing number of central bank functions. Researchers at the Systemic Risk Centre at LSE argue that the increased use of AI in central banking will bring significant cost and efficiency benefits, but it may not be trusted for macro-prudential regulations and crisis management and may increase systemic risk. |
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DIGITAL GIANTS STIFLING COMPETITION TO MAINTAIN THEIR MARKET DOMINANCE: Mergers and merger policy in digital marketsElena Argentesi, Paolo Buccirossi, Emilio Calvano, Tomaso Duso, Alessia Marrazzo, Salvatore Nava |
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Dominant companies in the digital market may use mergers and acquisitions – especially ‘killer’ or ‘zombie’ acquisitions – and the (under)enforcement of merger control to stifle competition and cement their market dominance. Writing at Vox, Tomaso Duso and colleagues analyse acquisition activity by Amazon, Facebook and Google between 2008 and 2018, and find that they often targeted very young firms. Because the evolution of young firms is still uncertain, it is difficult for competition authorities to assess the effects of these mergers, especially when the focus is on single acquisitions without considering the overall acquisition strategy. |
THE COST TO TAXPAYERS OF GOVERNMENT BANK BAIL-OUTS AFTER THE GLOBAL CRISISGiovanni Dell'Ariccia, Deniz Igan, Paolo Mauro, Hala Moussawi, Alexander F. Tieman, Aleksandra Zdzienicka |
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What was the cost to taxpayers of government action to bail out the banks in the Global Financial Crisis? IMF economists use a dataset of bank level data to show that the cost to taxpayer of direct government interventions to prop up banks a decade ago was $1.6 trillion. But the total cost today is now down to $250 billion – on average of less than 1% of GDP. |
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‘BIOLOGICAL CLOCKS’, IMPORT COMPETITION AND THE GENDER GAP IN EARNINGS: Evidence from the United States and DenmarkWolfgang Keller, Hâle Utar |
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The 20th century saw a steady increase in the number of women postponing motherhood to enhance their labour market opportunities. Sometime in the early 2000s, that trend ended. Writing at Vox, Wolfgang Keller and Hâle Utar compare the experience of women in the United States and Denmark, and find that women of childbearing age who experienced diminished labour market opportunities because of import competition from China turned towards family life, while men focused on finding a new career path in the labour market. Import competition from China raised the likelihood of marriage for women but not for men. The move towards family activities most often happens when women are in a weak labour market position due to import competition, such as unemployment or a spell outside the labour market. This supports the view that the shift of women from the labour market to family activities is induced by lower labour market opportunities. |
SOME BORROWERS ARE MORE EQUAL THAN OTHERS: Bank funding shocks and credit reallocationOlivier De Jonghe, Hans Dewachter, Klaas Mulier, Steven Ongena, Glenn Schepens |
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Access to finance for firms during crisis times: VoxEU evidence from Belgium that riskier firms, and firms borrowing from banks that have low sector market shares and specialisation are more vulnerable. Banks in Belgium made strategic lending decisions after the freeze of the interbank funding market in September 2008. Writing at Vox, Steven Ongena uses bank-firm combinations to show that banks reallocated credit to sectors where they can more easily extract rents or in which they have an information advantage, or to low-risk firms |
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HEALTHCARE POLICIES COULD LEAD TO LOST MEDICAL INNOVATIONS: Evidence from the prosthetic industryJeffrey Clemens, Parker Rogers |
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Why has medical innovation brought cost-increasing enhancements to quality rather than cost-reducing advances in productivity? A study by Jeffrey Clemens and Parker Rogers uses a new dataset drawn from patents for prosthetic devices to show that the design of incentives for innovators can have substantial effects on these margins. Fixed-price procurement arrangements induce greater effort to reduce production costs than cost-plus procurement arrangements. Procurement models may therefore inadvertently lead to 'missing innovations'. |
THE CAUSAL EFFECT OF EDUCATION ON CHRONIC HEALTH: UK evidenceKatharina Janke, David Johnston, Carol Propper, Michael A Shields |
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The strength of the causal link between education and a large set of prevalent chronic health conditions is relatively weak except for diabetes, finds new research by Katharina Janke, David Johnston, Carol Propper and Michael Shields, which uses two education reforms in the UK to study the causal link between education and a large set of prevalent chronic health conditions. |
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MEASURING THE IMPACT OF MALFUNCTIONING CREDIT MARKETS ON PRODUCTIVITYTim Besley, Isabelle Roland, John Van Reenen |
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A study by Tim Besley, Isabelle Roland and John Van Reenen presents a new methodological approach for calculating the cost of credit frictions. It finds that credit market frictions explain half of the fall in UK productivity in the Great Recession and depress output by 28% on average. Frictions in credit markets can damage economic efficiency due to a higher cost of capital and/or capital being misallocated away from its most productive uses. The approach in this study can be implemented with relatively simple data in multiple contexts. |
ECONOMICS IN THE TIME OF COVID-19
Richard Baldwin, Beatrice Weder di Mauro interviewed by Tim Phillips, 10 March 2020
How big are Covid-19's economic consequences? That's the theme of a new VoxEU book with contributions from many of the world's most experienced policy-makers with expertise in this area. Beatrice Weder di Mauro and Richard Baldwin, the book's editors, give Tim Phillips the (mostly) bad news.
WOMEN IN ECONOMICS
Donna Ginther, Erin Hengel, Shelly Lundberg, Jenna Stearns interviewed by Tim Phillips, 06 March 2020
Women are under-represented in economics, and the situation is not improving. Economists Shelly Lundberg, Donna Ginther, Jenna Stearns and Erin Hengel talk to Tim Phillips about VoxEU's new book on the subject, which examines the barriers that women face in the profession, and also suggests ways to support the next generation of female economists.
Economics in the Time of Covid-19
Richard Baldwin and Beatrice Weder di Mauro
A video interview recorded with Richard Baldwin and Beatrice Weder di Mauro to mark the publication of the CEPR / VoxEU 'instant' eBook, Economics in the Time of Covid-19. Tim Phillips discusses the themes of the book and the economic challenges ahead. Download the book for FREE here.
DOES CULTURE AFFECT ECONOMIC OUTCOMES?
Paola Sapienza
In her research, Paola Sapienza argues that immigrants are good proof of the invariance of culture. Their preferences and beliefs are formed by their country of origin, but they may live in economic conditions that are very different from the countries that they’re from. If culture didn’t play a role, immigrants from different countries, or immigrants and non-immigrants that live in similar economic situations, would share the same preferences and beliefs. Sapienza’s work shows that this is not the case.