This week from CEPR: November 05

Thursday, November 5, 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


    • EVIDENCE THAT THE UK'S EAT-OUT-TO-HELP-OUT SCHEME CONTRIBUTED TO THE SPREAD OF COVID-19     

    SUBSIDIZING THE SPREAD OF COVID19: Evidence from the UK's Eat-Out-to-Help-Out scheme
    Thiemo Fetzer        
    CEPR DP No. 15416 | November 2020

    A new CEPR study by Thiemo Fetzer documents that a large-scale government subsidy aimed at encouraging people to eat out in restaurants in the wake of the first 2020 Covid-19 wave in the United Kingdom has had a large causal impact in accelerating the subsequent second COVID19 wave. 

    The scheme subsidized 50% off the cost of food and non-alcoholic drinks for an unlimited number of visits in participating restaurants on Mondays-Wednesdays from August 3 to August 31, 2020. Areas with higher take-up saw both, a notable increase in new COVID19 infection clusters within a week of the scheme starting, and again, a deceleration in infections within two weeks of the program ending. 

    Areas that exhibit notable rainfall during the prime lunch and dinner hours on days the scheme was active record lower infection incidence - a pattern that is also measurable in mobility data - and non-detectable on days during which the discount was not available or for rainfall outside the core lunch and dinner hours. A back of the envelope calculation suggests that the scheme is accountable for between 8-17% of all new local infection clusters during that time period.

    Figure A1: Covid-19 spread across England

    Notes: Figure plots the share of English Middle Layer Super Output Area (MSOAs) that report at least three new cases of COVID19 per calendar week. The vertical lines indicate the time that the Eat Out to Help Out scheme was open.


    • CHANGES IN PRETAX INEQUALITY LEVELS PLAY A CENTRAL ROLE IN EXPLAINING THE LONG-TERM EVOLUTION OF THE DISTRIBUTION OF POST-TAX INCOME: Evidence from France and the United States   

    PREDISTRIBUTION VS. REDISTRIBUTION: Evidence from France and the US
    Antoine Bozio, Bertrand Garbinti, Jonathan Goupille-Lebret, Malka Guillot, Thomas Piketty        
    CEPR DP No. 15405 | October 2020

    A new CEPR study by Thomas Piketty and colleagues quantifies the extent of redistribution over time by the percentage reduction from pre-tax to post-tax inequalities, and decomposes the changes in post-tax inequalities into different redistributive policies and changes in pre-tax inequalities. To estimate these redistributive statistics, the authors construct homogenous annual series of post-tax national income for France over the 1900-2018 period, and compare them with those recently constructed for the United States. They study presents three major findings: 

    1. First, redistribution has increased in both countries over the period, earlier in the US, later in France, to reach similar levels today. 
    2. Second, the substantial long-run decline in post-tax inequality in France over the 1900-2018 period is due mostly to the fall in pretax inequality (accounting for three quarters of the total decline), and to a lesser extent to the direct redistributive role of taxes, transfers and other public spending (about one quarter). 
    3. Third, the reason why overall inequality is much smaller in France than in the US is entirely due to differences in pretax inequality. 

    These findings suggest that policy discussions on inequality should, in the future, pay more attention to policies affecting pretax inequality and should not focus exclusively on "redistribution". 


    • CIVIL LIBERTIES IN TIMES OF CRISIS: Lesson from the Covid-19 Pandemic  

    CIVIL LIBERTIES IN TIMES OF CRISIS
    Marcella Alsan, Luca Braghieri, Sarah Eichmeyer, Joyce Kim, Stefanie Stantcheva, David Yang       
    CEPR DP No. 15410 | October 2020

    The respect for and protection of civil liberties are one of the fundamental roles of the state, and many consider civil liberties as sacred and "nontradable." Using cross-country representative surveys that cover 15 countries and over 370,000 respondents, a new CEPR study by Marcella Alsan, Luca Braghieri, Sarah Eichmeyer, Joyce Kim, Stefanie Stantcheva and David Yang explores whether and the extent to which citizens are willing to trade off civil liberties during the COVID-19 pandemic, one of the largest crises in recent history. The study finds four main results:

    1. Many around the world reveal a clear willingness to trade off civil liberties for improved public health conditions. 
    2. Consistent across countries, exposure to health risks is associated with citizens' greater willingness to trade off civil liberties, though individuals who are more economically disadvantaged are less willing to do so. 
    3. Attitudes concerning such trade-offs are elastic to information. 
    4. The results show a gradual decline and then plateau in citizens' overall willingness to sacrifice rights and freedom as the pandemic progresses, though the underlying correlation between individuals' worry about health and their attitudes over the trade-offs has been remarkably constant. 

    These results suggest that citizens do not view civil liberties as sacred values; rather, they are willing to trade off civil liberties more or less readily, at least in the short-run, depending on their own circumstances and information



    DEFORESTATION IN BRAZIL IS SPREADING COVID-19 TO THE INDIGENOUS PEOPLES

    Humberto Laudares       
    03 November 2020

    A new study by Humberto Laudares finds that deforestation is playing a significant role in the transmission of Covid-19 to Indigenous populations, with one km2 deforested today estimated to result in 9.5% more new Covid-19 cases among Indigenous people in two weeks. In addition to being an environmental problem, deforestation is also a key health and economic issue, given the importance of curbing the spread of the Covid-19 to save lives and prevent an increase in inequality. 

      

    THE HISTORICAL RISE OF ITALIAN FASCISM: How Mussolini exploited the perceived threat of socialism

    Daron Acemoğlu, Giuseppe De Feo, Giacomo De Luca, Gianluca Russo      
    28 October 2020

    A study by Daron Acemoğlu and colleagues finds that the perceived threat of socialism was an important contributor to the rise of Italian fascism and Mussolini’s rise to power after WW1. This was largely because landowners, the industrial rich, and many middle-class people turned to the Fascists amid growing support for the Socialist Party and industrial and rural mobilisation.

    What are the lessons for today? These results can also be interpreted as a warning that we should watch out for heightening fears and anxieties rooted in economic instability, large immigrant flows or nationalism fuelled by international tensions, lest these start simultaneously radicalising right-wing populists and broadening their appeal among the population.


    PEOPLE FROM WEALTHY FAMILIES MARRY AMONG EACH OTHER: Evidence from Denmark

    Sander Wagner, Diederik Boertien, Mette Gørtz      
    01 November 2020

    A study by Sander Wagner, Diederik Boertien and Mette Gørtz examine whether people from wealthy families marry among each other, using data from Denmark to study partner selection based on parental wealth. The results show a relatively low correlation in partners' parental wealth overall, but a high degree of marriage between people from similar sociological or educational backgrounds at the top of the parental wealth distribution. In addition, it finds that homogamy based on parental wealth has increased steadily during the period 1980-2013. 


    TRUMP VS BIDEN: Political polarisation and expected economic outcomes

    Olivier Coibion, Yuriy Gorodnichenko, Michael Weber     
    31 October 2020

    Many US citizens woke up to an election outcome that they did not expect. Survey results show 87% of Democrats expected Biden to win while 84% of Republicans expected Trump to win. 

    Writing at Vox, Olivier Coibion, Yuriy Gorodnichenko and Michael Weber argue that in addition to leading some to question the legitimacy of an outcome they did not foresee as remotely possible, this will also translate into widespread economic pessimism, as both sets of voters expect dire economic consequences if their preferred candidate loses. Election-driven changes in beliefs on the part of consumers will likely affect their spending decisions, putting further downward pressure on an already struggling economy.  


    LIVES SAVED DURING ECONOMIC DOWNTURNS: Evidence from Australia

    Kadir Atalay, Rebecca Edwards, Stefanie Schurer, David Ubilava      
    02 November 2020

    Could measures implemented to slow the spread of Covid-19 do more harm than good? Due to the economic contraction itself and mental health impacts of social isolation? 

    A study by economists at the University of Sydney uses evidence from the past four decades in Australia to show that economic downturns actually have very little impact on mortality except to reduce vehicle transport deaths. While this of course does not preclude an impact on wellbeing from the current lockdowns or recession, we may at least see an even greater reduction in mortality during this recession due to fewer people being on the roads.  


    CENTRAL BANK DIGITAL CURRENCIES: Drivers, approaches, and technologies

    Raphael Auer, Giulio Cornelli, Jon Frost       
    28 October 2020


     

    Writing at Vox, BIS economists survey the drivers, policy approaches and technical designs of Central bank digital currencies, based on a comprehensive and publicly available database. The findings show that all Central bank digital currency projects aim to complement cash rather than replace it. Many projects would allow for an important role of the private sector in the payment system. The diversity of approaches and designs reflects that each central bank is considering a CBDC that fits the unique needs of their own jurisdiction.


    BANKERS USING THEIR POLITICAL CONNECTIONS FOR PERSONAL GAIN: Evidence from the 2008 US Troubled Asset Relief Program (TARP)

    Ozlem Akin, Christian Fons-Rosen, José-Luis Peydró      
    29 October 2020

    A study by Ozlem Akin, Christian Fons-Rosen and José-Luis Peydró examines insider trading surrounding the largest bank bailout in history, the 2008 US Troubled Asset Relief Program. In politically connected banks, insider buying during the pre-TARP period is associated with increases in abnormal returns around bank-specific TARP announcements. Information transmission seems to be a third pillar of the mutually beneficial relationship between finance and politics, possibly allowing bankers to use their political connections for personal gain.

    There are widespread concerns about potentially excessive connections between the financial sector and political institutions. Less is known about the intensity of information flows between the public and private sector. 


    THE IMPORTANCE OF CULTURAL FACTORS IN SHAPING PARENTS’ ATTITUDES TOWARDS EDUCATION

    Marta De Philippis, Federico Rossi      
    03 November 2020

    Differences in educational attainment play a major role in defining cross-country variations in economic outcomes. Writing at Vox, Marta De Philippis and Federico Rossi show that these cross-country gaps go beyond differences in school quality and parents' socioeconomic background, and that country-specific cultural values, transmitted through parental practices, play an important role. This suggests that policies aimed at simply replicating school practices from highly performing countries might have smaller-than-expected effects.


    BORDER CONTROLS ACROSS EUROPEAN REGIONS HELPED TO CONTAIN COVID-19

    Matthias Eckardt, Kalle Kappner, Nikolaus Wolf        
    04 November 2020

    A study by economists at the Humbolt University Berlin uses regional data on confirmed new Covid-19 cases from the statistical agencies of 18 Western European countries to show that border controls helped to contain Covid-19, but only for regions with a substantial number of cross-border commuters prior to the crisis. Better policy coordination at the European level could have generated these benefits at lower economic (and political) cost.


    EUROPEAN SAFETY NET PROGRAMMES WERE INADEQUATE DURING COVID-19: Time for a rethink 

    Alex Rees-Jones, John D'Attoma, Amedeo Piolatto, Luca Salvadori   
    04 November 2020

    A study by Alex Rees-Jones and colleagues evaluates changing attitudes towards welfare spending as a result of the pandemic. The findings suggest that people living in areas most severely hit by the crisis are increasingly supportive of long-term reforms to the welfare system. Despite having access to relatively widespread welfare spending, European citizens are dissatisfied with the safety net systems currently in place. While few groups have weathered the Covid-19 crisis unscathed, evidence suggests that the damage has been especially extreme among the economically vulnerable. 


    MAKING THE WORLD A SMALLER PLACE: Economic effects of China’s large transport infrastructure growth 

    Peter Egger, Gabriel Loumeau, Nicole Loumeau        
    03 November 2020

    A study by economists at ETH-Zurich examines the magnitude and the long-run consequences of the China’s large transport infrastructure network growth in the last two decades. 

    It finds that increased network centrality fosters regional convergence in population and, to a lesser extent, in real per-capita incomes. New developments connect what were originally relatively remote and less central prefectures to the improved, faster networks. This provides them with better access to China's economically central prefectures and to the rest of the world. Two components generate most of this change: reduced goods-transport costs and a greater diffusion of technology along the infrastructure network.


    PUBLIC SECTOR JOBS MAY NOT BE A MAGIC BULLET TO KICKSTART LOCAL ECONOMIES: Evidence from West Germany’s post-war capital Bonn

    Sascha O. Becker, Stephan Heblich, Daniel Sturm        
    03 November 2020

    Raising the level of public employment is a frequently used policy instrument to support economically lagging regions. A study by Sascha O. Becker, Stephan Heblich and Daniel Sturm evaluates the impact of changes in public employment on private sector activity using the creation of the West German government in Bonn as a source of exogenous variation. 

    The results show that relative to a control group of cities, public employment increased substantially in Bonn, but this led to only a modest increase in private sector employment. This suggests that public sector jobs may not be a magic bullet to kickstart local economies.


    THE V-SHAPED RECOVERY OF BOND MARKETS IS UNLIKELY TO LEAD TO A V-SHAPED RECOVERY IN REAL ACTIVITY

    Olivier Darmouni, Kerry Siani       
    29 October 2020

    During Covid-19, instead of relying on bank loans, firms preferred to issue corporate bonds on capital markets. A study by Olivier Darmouni and Kerry Siani finds that over 40% of bond issuers left their credit line untouched, and a large share of bond issuance was used to repay existing bank loans. Bond issuance was also used to increase holdings of liquid assets rather than for real investment. This suggests that the V-shaped recovery of bond markets is unlikely to lead to a V-shaped recovery in real activity.

     


    FINANCIAL SHOCK TRANSMISSION IN A PRODUCTION NETWORK

    Banu Demir, Beata Javorcik, Tomasz K. Michalski, Evren Örs      
    29 October 2020

    Writing at Vox, Banu Demir, Beata Javorcik, Tomasz K. Michalski and Evren Örs analyse the effect of a tax policy change on firm-level production chains and performance. They show that unexpected and non-localised supply shocks propagate downstream through production networks, affecting sales, input usage, and buyer and supplier linkages. In addition, the study shows that the effects are amplified in firms facing financial constraints, highlighting the importance of liquidity in the resilience to shocks. 


    OIL SHOCKS AND REVERSAL OF POLITICAL FORTUNES

    Rabah Arezki, Simeon Djankov, Ha Nguyen, Ivan Yotzov       
    30 October 2020

    A study by Rabah Arezki, Simeon Djankov, Ha Nguyenand and Ivan Yotzov explores the effect of oil shocks on electoral outcomes, using a new polling and election data set for 207 elections across 50 democracies. Among the findings: 
    • Oil price increases one year before an election systematically and significantly lower the odds of incumbents being re-elected. 
    • The winning parties are more likely to belong to the opposite end of the political spectrum from the incumbent.

    HOW TWITTER AFFECTED THE 2016 PRESIDENTIAL ELECTION

    Thomas Fujiwara, Karsten Müller, Carlo Schwarz       
    30 October 2020

    A study by Thomas Fujiwara, Karsten Müller and Carlo Schwarz explores new evidence on the impact of Twitter on US elections and finds that Twitter likely persuaded independents to vote against Donald Trump in the 2016 presidential election, but had no effect on other elections. 

    There has been increasing concern about the impact of social media on elections. Many have argued that social media platforms enable right-wing populists or stifle freedom of speech by censoring conservative voices. 


    THE ENORMOUS POTENTIAL OF SOCIAL MEDIA TO MEASURE HUMAN CULTURE

    Klaus Desmet, Ignacio Ortuño-Ortin, Ömer Özak, Nick Obradovich, Ignacio Martín, Edmond Awad, Manuel Cebrían, Ruben Cuevas Rumin, Iyad Rahwan, Ángel Cuevas Rumin       
    31 October 2020

    By allowing us to peer into the lives of billions of people, social media has inadvertently created the world’s largest dataset for the measurement of culture. Writing at Vox, Klaus Desmet and colleagues argue that by providing quantitative, scalable, high-resolution, and cost-effective measures of revealed cultural distances between populations, it has enormous potential to help social scientists answer some of society’s most pressing issues. These include the persistence of ethnic conflict, the growing fragmentation of society, and the fraying of the social fabric. Cultural distances are also essential to our understanding of trade, migration, and investment flows.

    MACRO-FINANCIAL CRISES: Impeding the rush for the exit

    Patrick Honohan       
    30 October 2020

    With the knock-on financial impact of the pandemic, it is likely that several countries could soon face macro-financial crises, with investors rushing for the exit (as in Lebanon, where a crisis is already well underway). Writing at Vox, Patrick Honohan details lessons from the post-Global Crisis recovery experiences of Cyprus, Iceland and Ireland – plus Lebanon today  – and shows how different the mixture of these tools used in handling such country crises have been. 

    THE WAGE CURVE ACROSS THE WEALTH DISTRIBUTION

    Roberto Iacono, Marco Ranaldi       
    02 November 2020

    A study by Roberto Iacono and Marco Ranaldi examines how wages and unemployment vary across the relative distribution of personal wealth in Norway, focusing on the wage-to-unemployment ratio across the different percentiles of the wealth distribution. The study finds that wealth-poor individuals cannot escape low labour incomes regardless of the unemployment rate they face, while the unemployment elasticity of wages is substantially higher for wealth-rich individuals.

    The uneven distribution of wealth in society is commonly perceived as a matter of concern per se for inequality-averse policymakers. However, being wealth-poor or wealth-rich is also correlated with outcomes in the labour market. 


    OPTIMAL NEED-BASED FINANCIAL AID: Evidence from the United States 

    Mark Colas, Sebastian Findeisen, Dominik Sachs        
    31 October 2020

    Need-based financial aid helps underprivileged students in the United States attend university, yet a study by Mark Colas, Sebastian Findeisen and Dominik Sachs finds that current aid packages in the United States are significantly less need-based than they should be. Not only does need-based financial aid help to reduce inequality, it is also an investment in future tax revenue, making it an optimal subsidy from an efficiency standpoint. In this case, equity and efficiency go hand in hand. 


    GUN CONTROL IN BRAZIL

    Rodrigo Schneider interviewed by Tim Phillips, 30 October 2020

    In 2003 Brazil enacted strict gun control legislation. Rodrigo Schneider tells Tim Phillips about the effects on crime and homicide, and whether we can assume there would be a similar impact in other countries.

    Find more about Rodrigo's paper Crime and political effects of a right-to-carry ban in Brazil, presented at the 72nd Economic Policy Panel Meeting.