This week from CEPR: November 25
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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- DOES ORGANIZED CRIME ATTRACT EU FUNDING? Evidence from the Sicilian Mafia
DOES ORGANIZED CRIME ATTRACT EU FUNDING? Evidence from the Sicilian Mafia
João Pereira dos Santos, José Tavares, Marlene Thomas
CEPR Discussion Paper No. 16732 | November 2021
In the wake of the Covid-19 pandemic and EU plans to invest €1.8 trillion to rebuild a post-COVID-19 Europe, yet real concerns exist surrounding the vulnerability of EU fund allocation to fraud and corruption. A key characteristic in this is the activity of criminal organisations such as the Italian Mafias, who misappropriate public funds for revenue. In January 2020 alone, authorities have arrested 94 members associated with Mafia clans in Sicily suspect of targeting EU rural development funds worth 5.5 million euros
A new CEPR study by João Pereira dos Santos, José Tavares and Marlene Thomas examines the impact of the Sicilian Mafia on the allocation of European Union (EU) funding to Sicilian municipalities between 2007 and 2019. Mafia activity is proxied by real estate assets seized from organised crime, and instrumented by either geographical shifters of land value, or geographical pointers of Mafia´s historical roots as of the end of the 19th century.
The research shows that Mafia presence increases the amount of EU funds and the number of EU projects assigned to municipalities. The estimated impact of organized crime on EU funding is present for different types of investments, including infrastructure, goods and services, grants to individuals, and incentives to firms.
The findings suggest that local institutions - including the prevalence of organised crime, affect how place-based policies - even those originating in international institutions such as the EU, are allocated. The results are robust to the exclusion of province capitals or municipalities where city councils were dissolved by the national government for (presumed) Mafia infiltration.
Figure: a) Mafia activity b) EU funded projects
DOMESTIC CARBON TAXES INCREASES BANKS' LENDING TO COAL, OIL, AND GAS COMPANIES IN FOREIGN COUNTRIES
CARBON TAXES AND THE GEOGRAPHY OF FOSSIL LENDING
Luc Laeven, Alexander Popov
CEPR Discussion Paper No. 16745 | November 2021
Not a single country in the world taxes carbon-intensive activities at the levels recommended by economists. This hesitancy is partially driven by free-riding: national authorities are afraid that imposing carbon taxes unilaterally would hurt their economies as carbon-intensive activities migrate to different jurisdictions.
In a new CEPR paper, Luc Laeven and Alexander Popov show that such carbon tax arbitraging can indeed happen because of adjustments in multinational banks’ lending portfolios. Using data on syndicated loans, the research shows that:
- The introduction of a domestic carbon tax is associated with an increase in domestic banks' lending to coal, oil, and gas companies in foreign countries.
- The reallocation of fossil lending across national borders is immediate, economically meaningful, and statistically significant.
- After a carbon tax is introduced in a country, foreign lending to fossil companies increases by at least 4.3%. At the same time, because domestic fossil lending declines, overall fossil lending goes down by about 0.6%.
- The same effect holds for the introduction of Emissions Trading Schemes.
- The reallocation of lending in response to carbon taxes is not confined to coal, oil, or gas companies, but it is observed for other carbon-intensive sectors, such as metallurgy and cement production.
- There are significant differences within the group of banks, firms, and countries affected by the carbon tax. Banks are much more willing to continue lending to fossil firms by reallocating lending across national borders if they already have relatively large fossil exposures.
- They are also more likely to increase the amount of fossil lending to countries which do not have a carbon tax themselves, and are more likely to increase fossil lending to relatively riskier firms.
These findings highlight the importance of a global carbon tax to prevent the reallocation of carbon emissions across national borders via financial markets.
Figure: Countries with a carbon tax, an ETS, or both: 1988–2020
THE HEALTH EFFECTS OF UNIVERSAL EARLY CHILDHOOD INTERVENTIONS: Evidence from Sure Start in England
THE HEALTH EFFECTS OF UNIVERSAL EARLY CHILDHOOD INTERVENTIONS: Evidence from Sure Start
Joshua Aizenman, Alex Cukierman, Yothin Jinjarak, Weining Xin
CEPR Discussion Paper No. 16728 | October 2021
Fully universal, scaled-up, area-based early childhood intervention can deliver significant and long-lasting health benefits, even in a context with free healthcare.
This is the main conclusion of a new CEPR study by Sarah Cattan, Gabriella Conti, Christine Farquharson, Rita Ginja and Maud Pecher, which evaluates the short- and medium-term heath impacts of Sure Start, a large-scale and universal early childhood program in England. Among the findings:
- Exposure to an additional Sure Start center per thousand age-eligible children increases hospitalisation by 10% at age 1 (around 6,700 hospitalizations per year), but reduces them by 8-9% across ages 11 to 15 (around 13,150 hospitalizations per year).
- Greater access to Sure Start thus increased hospitalisations during infancy, but subsequently reduced them during childhood and adolescence.
- These findings show that early childhood programs that are less intensive than small-scale 'model programs' can deliver significant health benefits, even in contexts with universal healthcare.
- Results are consistent with Sure Start working through a number of mechanisms, including: strengthening children’s immune systems, fostering children’s behavioural and emotional development, and improving parenting practices and the safety of the home environment.
- Impacts are driven by hospitalisations for preventable conditions and are concentrated in disadvantaged areas, suggesting that enriching early childhood environments might be a successful strategy to reduce inequalities in health.
These results demonstrate the importance of integrating health services with early education and childcare and parenting services to promote child development in a holistic way.
The policy response to Covid-19 in Europe avoided mistakes made a decade earlier. But what should the fiscal and monetary policy framework be after the pandemic? Marco Buti, author of a new CEPR policy insight on this topic and the book The Man Inside about how Europe coped with recent crises, talks to Tim Phillips.
Download the CEPR policy insight: Buti, M and Messori, M, Euro area policy mix: From horizontal to vertical coordination, CEPR Policy Insight No 113.
Do we have children to provide for us in our old age? Pauline Rossi tells Tim Phillips about the impact on the size of families in Namibia after the government granted a state pension – research that might have important implications for economic development in Africa.
Read more about the research behind this podcast and download the Discussion paper for free:
Godard, M and Rossi, P. 2021. 'The Old-Age Security Motive for Fertility: Evidence from the Extension of Social Pensions in Namibia'. CEPR