This week from CEPR: May 13

Thursday, May 13, 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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    WILL COVID-19 HAVE LONG-LASTING EFFECTS ON INEQUALITY? Evidence from Past Pandemics
    Davide Furceri, Prakash Loungani, Jonathan D. Ostry, Pietro Pizzuto  
    CEPR Discussion Paper No. 16122 | May 2021

    Past pandemics, even though much smaller in scale, have led to increases in the Gini coefficient, raised the income shares of higher-decile income groups, and lowered the employment-to-population ratio of those with basic education compared to those with higher education. New evidence suggests that the distributional consequences from the current Covid-19 pandemic may be larger than those flowing from historical pandemics, and larger than those following typical recessions and financial crises.

    These are among the main findings of a new CEPR paper by Davide Furceri, Prakash Loungani, Jonathan D. Ostry and Pietro Pizzuto, which demonstrates the impact of major epidemics from the past two decades on income distribution. Past Pandemics have: 

    • Led to increases in the Gini coefficient:
      • Pandemics lead to a persistent increase in inequality with a peak effect of about 0.4 five years after the pandemic—that is an average increase of 1.1 percent. 
    • Raised the income share of higher-income deciles:
      • The impact is to raise the shares of the upper income quintile and reduce those of the lower-income quintile. the share of income going to the top two deciles is 46% on average; five years after the pandemic, this share increases to nearly 48%. The share of income going to the bottom two deciles is 6%; five years after the pandemic, this share falls to 5.5%.
    • Lowered the employment-to-population ratio for those with basic education compared to those with higher education:
      • Those with non-basic levels of education are scarcely affected, whereas the employment to population ratio of those with basic levels of education falls significantly, by more than 5% in the medium term.

    The authors demonstrate that the distributional consequences from the current pandemic are likely to be larger than those flowing from the historical pandemics, and larger than those following typical recessions and financial crises. In the absence of long-lasting supportive policies to protect the vulnerable, the pandemic could end up exerting a significant impact on inequality.


    • WHY IS ECONOMICS LAGGING BEHIND IN RACE-RELATED RESEARCH?  

    RACE-RELATED RESEARCH IN ECONOMICS AND OTHER SOCIAL SCIENCES
    Arun Advani, Elliott Ash, David Cai, Imran Rasul     
    CEPR Discussion Paper No. 16115 | May 2021

    Economics lags far behind the other disciplines in the volume and share of race-related research, despite having higher absolute volumes of research output.

    These are among the findings of a new CEPR study by Arun Advani, Elliott Ash, David Cai and Imran Rasul, which uses a corpus of 500,000 academic publications in economics, political science, and sociology to assess how economics compares to other social sciences in its study of issues related to race and ethnicity. Among the findings: 

    • Since 1960, there have been 13,000 race-related publications in sociology, 4,000 in political science, and 3,000 in economics. 
    • Since around 1970, the share of economics publications that are race-related has hovered just below 2% (although the share is higher in top-5 journals). 
    • In political science the share has been around 4% since the mid-1990s, while in sociology it has been above 6% since the 1960s and risen to over 12% in the last decade. 
    • Economists also tend to overestimate the amount of race-related research in all disciplines, but especially so in economics.

    • HOW WARTIME CASUALTIES INFLUENCE PUBLIC SUPPORT FOR WITHDRAWAL: Evidence from the Afghanistan war  

    LOSING ON THE HOME FRONT? Battlefield Casualties, Media, and Public Support for Foreign Interventions
    Thiemo Fetzer, Pedro CL Souza, Oliver Vanden Eynde, Austin Wright     
    CEPR Discussion Paper No. 16102 | May 2021

    A new CEPR study by Thiemo Fetzer, Pedro CL Souza, Oliver Vanden Eynde and Austin Wright analyses the impact of battlefield casualties and media coverage on public demand for war termination. Based on survey evidence from eight troop-sending NATO countries in the Afghanistan war, the study finds that:

    • Fatalities are associated with a significant worsening of public support for continued engagement in the conflict.
    • Non-combat troop deaths and fatalities tied to other coalition partners have no discernible impact on support.
    • Media reporting on events involving troop fatalities is a central driver of these effects.
    • The study also finds that major sporting matches occurring around the time of battlefield casualties (i) drive down subsequent press coverage, and (ii) significantly weaken the effect of casualties on support for war termination.

    These results highlight the important role that the media play in shaping public support for foreign military interventions.



    SCHOOL CLOSURES DID NOT CONTRIBUTE TO THE SPREAD OF THE CORONAVIRUS IN GERMANY

    Clara von Bismarck-Osten, Kirill Borusyak, Uta Schӧnberg                 
    08 May 2021

    A new study by Clara von Bismarck-Osten, Kirill Borusyak and Uta Schӧnberg  provides evidence from Germany that school closures did not contain infections among young people or adults in the summer of 2020 – when infection rates were low – or during the pandemic’s autumn resurgence. Thus, the benefits of school closures may not outweigh their costs to children and parents, particularly mothers.

    The original study was featured in the 73rd Economic Policy Panel Meeting. Read more here.   

     

    PANDEMIC DIVERGENCE: The social and economic costs of Covid-19 will not be shared equally

    Eduardo Levy Yeyati, Federico Filippini                           
    12 May 2021

    While the medium-term costs of the Covid-19 pandemic are still uncertain and vary significantly across countries, a study by Eduardo Levy Yeyati and Federico Filippini shows that developing economies will suffer the most.

    The pandemic has exposed the differential capacity of governments to mitigate health and economic crises and to allocate scarce resources efficiently, while some labour market structures have inhibited government efforts to attenuate the pandemic’s impact – impediments that will also shape comparative recoveries. 


    US INFLATION: Set for take-off?

    Laurence Ball, Gita Gopinath, Daniel Leigh, Prachi Mishra, Antonio Spilimbergo                       
    07 May 2021

    How high is the ongoing US fiscal expansion likely to push inflation? Writing at Vox, Laurence Ball, Gita Gopinath, Daniel Leigh, Prachi Mishra and Antonio Spilimbergo show that underlying (weighted median) CPI inflation has so far steadily declined since the start of the COVID-19 crisis, broadly as predicted by its historical Phillips curve relation.

    If the ongoing fiscal expansion reduces unemployment to 1.5-3.5%, as some predict, underlying inflation could rise to about 2.5-3% by 2023. If the fiscal expansion is temporary and monetary policy remains clearly communicated and decisive, there is little risk of a 1960s-type inflationary spiral. 


    MACROECONOMIC IMPACTS AND POLICY RESPONSES OF MODERN INFECTIOUS DISEASES: Preventive policies, containment strategies, and early responses are key 

    David Bloom, Michael Kuhn, Klaus Prettner                        
    06 May 2021

    Writing at Vox, David Bloom, Michael Kuhn and Klaus Prettner present an overview of the macroeconomic effects of the infectious disease epidemics of the 20th and early 21st centuries through the lens of recent COVID-19 research and explores the epidemic–economics nexus.

    The authors demonstrate that preventive policies, containment strategies, and early responses are more efficient, cost-effective, and manageable than combatting a full-scale infectious pandemic outbreak.


    HIGH-SPEED RAIL MAY HURT INTERMEDIATE REGIONS THROUGH INCREASED JOB LOSSES

    Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse                           
    09 May 2021

    Modern transportation infrastructure can help foster cheaper travel and a better-connected economy. However, a study by Hans Koster, Takatoshi Tabuchi and Jacques-François Thisse shows that transport improvements can affect the location choices of firms in ways beneficial to large regions but detrimental to small intermediate regions through job losses.

    Using data from Japan’s high speed rail network, the authors show that ‘in-between’ municipalities that are connected to the network suffer a sizeable decrease in employment.


    IRELAND’S GROWTH TRAJECTORY SINCE INDEPENDENCE HAS BEEN FAR FROM EXCEPTIONAL. RATHER, IT SHOULD BE SEEN AS VOLATILE

    Cormac Ó Gráda, Kevin O'Rourke                     
    11 May 2021


     

    Depending on the period, Ireland’s economy has served as a model to be followed or a sobering lesson in failure. Writing at Vox, Cormac Ó Gráda and Kevin O'Rourke review the performance of the Irish economy from a long-run perspective and suggests that contrary to the common discourse, Ireland’s growth trajectory since independence has been far from exceptional. Rather, it should be seen as volatile. 


    CENTRAL BANKS IN A SHIFTING WORLD: Selected takeaways from the ECB’s online Sintra Forum

    Philipp Hartmann, Glenn Schepens                     
    12 May 2021

    The 2020 ECB Forum on Central Banking addressed some key issues from the ongoing monetary policy strategy review and embedded them in discussions of major structural changes in advanced economies and the post-COVID recovery.

    Writing at Vox, two of the organisers, Philipp Hartmann and Glenn Schepens, highlight some of the main points from the papers and debates, including whether globalisation is reversing, implications of climate change, options for formulating the ECB's inflation aim, challenges with informal monetary policy communication, relationships between financial stability and monetary policy, how to make a monetary policy framework robust to deflation or inflation traps and the role of fiscal policy for the recovery from the pandemic. 


    CORRUPTION UNDER AUSTERITY: Evidence from Italy 

    Gianmarco Daniele, Tommaso Giommoni                          
    10 May 2021

    How do fiscal austerity policies affect corruption? A study by Gianmarco Daniele and Tommaso Giommoni uses data from Italian municipalities to show that budget rules have led to a decrease in both recorded corruption rates and corruption charges per euro spent, without a clear effect on local public service provision.

     The drop in corruption emerges mostly in pre-electoral years for mayors eligible for re-election. Budget constraints might induce local governments to curb expenditures while dampening exposure to corruption.


    OPENING UP MILITARY INNOVATION: The causal effects of ‘bottom up’ reforms to US defence research

    Sabrina Howell, Jason Rathje, John Van Reenen, Jun Wong                             
    08 May 2021

    In recent decades, US defence R&D seems to have lost its lustre. To combat the declining innovation, reforms to contracting procedures now allow applicants more freedom to suggest projects with potential military benefits.

    A study by Sabrina Howell, Jason Rathje, John Van Reenen and Jun Wong assesses the effects of the reform, and finds that the ‘open’ programme attracts new and younger firms, increases future venture capital investment, and increases patenting. The authors suggest that government R&D could thus benefit from more bottom-up, decentralised approaches to promote innovation in the public sector. 


    SPECIAL ISSUE OF ECONOMIC POLICY ON STEREOTYPES, ATTITUDES AND DISCRIMINATION

    Barbara Petrongolo, Ghazala Azmat, Roberto Galbiati, Tommaso Monacelli, Moritz Schularick                 
    10 May 2021

    Recent campaigns such as Black Lives Matter and #MeToo highlight the urgent need for a deeper understanding of persistent economic differences across different social groups. In an increasingly diverse society, insight into what underpins gaps along lines of race, ethnicity and gender, and the role of perceptions in driving conduct, is imperative. Similarly, the assessment of policies designed to tackle these issues is essential. With the aim of informing this discussion, the Managing Editors of Economic Policy are opening a call for papers for a special issue on “Stereotypes, Attitudes and Discrimination” to bring together the best ideas to inform the debate and provide high-impact policy advice.

    Visit the Economic Policy website for more information and to access previous issues  >>>


    THE EU SHOULD REFRAIN FROM EXEMPTING EXPORTS FROM CARBON PRICING

    Christoph Schmidt, Marcel Fratzscher, Nicola Fuchs-Schündeln, Clemens Fuest, Christian Gollier, Philippe Martin, Isabelle Mejean, Xavier Ragot, Katheline Schubert, Beatrice Weder di Mauro                   
    06 May 2021

    The EU has announced reaching carbon neutrality by 2050 as the key target of its Green Deal strategy. The best coordination signal in this endeavour would be a uniform and encompassing price on carbon. To ascertain that all goods consumed in the EU face the same carbon price, it would be sensible to credibly prepare the implementation of border carbon adjustments  applied to imported goods.

    A study by Christoph Schmidt and colleagues argues, however, that the EU should refrain from exempting exports from carbon pricing, and should consider a border carbon adjustment mechanism only after having established a credible uniform carbon-pricing mechanism within its jurisdiction. This could provide incentives to other countries to join a far-reaching international alliance for carbon pricing.



    PARENTAL AGE AND CHILD HEALTH

    Hans Hvide interviewed by Tim Phillips, 07 May 2021

    As more of us wait to have children, more of us also worry if that's best for the health of our babies. Empirical evidence has been inconclusive so far but, based on new evidence, Hans Hvide tells Tim Phillips that this might be a problem with the way the research has been done.



    GENDER AND EMPLOYMENT DURING COVID-19: The evidence for 'she-cessions'

    Francesca Caselli interviewed by Tim Phillips, 11 May 2021

    Francesca Caselli of the IMF talks to Tim Phillips about evidence for the extent and persistence of pandemic-induced she-cessions, drawing on quarterly data from 38 advanced and emerging market economies, which uncovers significant heterogeneity across countries. In two-thirds of the countries studied, women’s employment rates declined more than men’s, but the differences were short-lived – lasting only a quarter or two on average – and strongly correlated to specific sectors of the economy.