This week from CEPR: November 25

Wednesday, November 24, 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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  • 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.



MONETARY INCENTIVES INCREASE COVID-19 VACCINATIONS, NUDGES DO NOT: Evidence from Sweden

Pol Campos-Mercade, Armando N. Meier, Florian Schneider, Stephan Meier, Devin Pope, Erik Wengström              
19 November 2021

A study by Pol Campos-Mercade and colleagues use data from Sweden to show that a modest incentive of €20 can increase vaccination rates substantially. Incentives appear to help increase vaccination uptake in any group, including those socioeconomic groups that are less likely to get vaccinated. However, behavioural nudges, such as providing information or highlighting the social impact of vaccination, do not lead to a statistically significant increase in vaccination rates. 

 

DOMESTIC VIOLENCE INCIDENTS IN LONDON SEVEN TO EIGHT TIMES LARGER THAN PREVIOUS ESTIMATES SUGGEST

Dan Anderberg, Helmut Rainer, Fabian Siuda                
20 November 2021

Based on internet search activity, a study by Dan Anderberg, Helmut Rainer and Fabian Siuda finds a 40% increase in domestic violence incidents in London during the lockdowns – seven to eight times larger than estimates relying on police data alone.

The research suggests that studies based solely on police-recorded incidents of domestic violence provide a less accurate picture than sources less susceptible to changes in reporting behaviour. 


EU DIRECTIVES FAIL TO MITIGATE THE 'ASYLUM LOTTERY'

Timothy Hatton                                         
12 November 2021

Less than half of all applicants for political asylum in Europe gain some form of recognition that allows them to stay. Since the early 2000s, the EU has developed a common asylum policy with the aims of protecting the rights of refugees and mitigating the ‘asylum lottery’.  

Writing at Vox, Timothy Hatton shows that the implementation of EU Directives contributed modestly to an overall increase in average recognition rates but has not reduced the variation in rates across countries.


WHY SOME NATIONS’ LABOUR MARKETS DID BETTER DURING THE COVID PANDEMIC

Simeon Djankov, Eva (Yiwen) Zhang                                         
22 November 2021

Data from 45 OECD economies demonstrates that both high levels of human capital and, to a lesser extent, flexible labour regulation have allowed labour force participation to recover faster during the Covid crisis. The study by Simeon Djankov and Eva Zhang shows that countries that prepare to fight the effects of globalisation and robotics have also managed to alleviate the effects of the shock on the labour market.  


HOW MUCH DO ROADS BOOST REGIONAL ECONOMIES? Evidence from Turkey

Kerem Cosar, Banu Demir, Devaki Ghose, Nathaniel Young                                          
21 November 2021

Major upgrades of existing road networks and domestic transactions in Turkey increased domestic trade and improved regional economies. The study by Kerem Cosar, Banu Demir, Devaki Ghose and Nathaniel Young estimates the positive impact of reduced travel times on trade and regional employment, and long-run aggregate real income gains of 2-3%. 


A TEMPORARY VAT CUT AS UNCONVENTIONAL FISCAL POLICY: Evidence from Germany

Rüdiger Bachmann, Benjamin Born, Olga Goldfayn-Frank, Georgi Kocharakov, Ralph Luetticke, Michael Weber                                      
20 November 2021


 

Writing at Vox, Rüdiger Bachmann and colleagues show that the temporary reduction in Germany’s value added tax in the second half of 2020 led to a 36% increase in durable spending for individuals with a high perceived price pass-through, along with an increase in semi- and non-durable spending. 

In total, aggregate consumption spending rose by about €34 billion. Unlike unconventional monetary policy, which often relies on consumer sophistication, the stabilisation success of the temporary VAT cut was partly related to its simplicity.


DANGERS OF UNREGULATED ARTIFICIAL INTELLIGENCE

Daron Acemoğlu                                      
23 November 2021

Current AI technologies are more likely to generate various adverse social consequences, rather than the promised gains. The main problem is not AI itself, but the way leading firms are approaching data and their use. Writing at Vox, Daron Acemoğlu argues that policy should focus on redirecting technological change to create new capabilities and opportunities for workers and citizens.  

MUTUAL FUNDS’ LOYALTY HELPED TO STABILISE ESG STOCKS DURING THE COVID-19 MARKET CRASH

Rui Albuquerque, Yrjo Koskinen, Raffaele Santioni                                      
23 November 2021

How did the stock market crash caused by Covid-19 affect different asset classes and fund types? Writing at Vox, Rui Albuquerque, Yrjo Koskinen and Raffaele Santioni show that: 

  • funds with high environmental, social, and governance ratings helped to stabilise the market, but other funds also provided support for ESG stocks
  • all funds experiencing inflows increased their net purchases, but this behaviour was stronger for ESG funds
  • non-ESG funds experiencing outflows increased their net sales, but this was limited to their holdings of non-ESG stocks.


THE EURO AREA POLICY MIX: From horizontal to vertical coordination

Marco Buti 23 November

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.



PENSIONS AND FERTILITY IN NAMIBIA

Pauline Rossi interviewed by Tim Phillips, 19 November 2021

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