This week from CEPR: November 28th

Thursday, November 28, 2019

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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    Raphael Espinoza, Jonathan D. Ostry, Xiaoxiao Zhang    
    CEPR DP No. 14137 | 20 November

    Democratic governments attempt to protect their workers from the risks posed by globalisation by increasing public spending, particularly on labour market policies and family benefits. 

    These are among the conclusions of a new CEPR study by Matteo Picchio and Jan van Ours, which investigates how trade and financial globalisation affect government decisions to redistribute via spending and taxation, using a large panel covering around 100 democratic countries over the period 1970-2015. Among the findings: 

    • Countries more exposed to globalisation have bigger governments and spend more on social expenditure, in particular for labour market and family programmes. 
    • Trade openness increases the tax burden on labour income and reduces the tax burden on capital income; financial openness reduces corporate income tax rates. 
    • Greater exposure to trade pushes governments to spend more on labour market programmes and family benefits. 
    • Education spending is not sensitive to trade openness.
    • Spending on programmes that benefit the general population is larger in countries with good democratic accountability and with proportional parliamentary systems.
    • Political institutions do not seem to affect the sensitivity of public spending to globalisation.

    These findings highlight the challenges to governments willing to protect their populations from the economic risks that globalisation can create, but also constrained in their ability to do so by the mobility of tax bases.

    Figure 7: Government expenditure in the OECD 

     

    Source: OECD Gvt Expenditure by Function (1970-2016)
    Note: Wiskers show the 25-75 percentile range


    • PUBIC SPENDING ON RESEARCH BOOSTS R&D INVESTMENT IN THE PRIVATE SECTOR

    DEFENSE R&D, PRODUCTIVITY AND INTERNATIONAL SPILLOVERS
    John Van Reenen      
    CEPR DP No. 14145 | 21 November

    A new CEPR study by John Van Reenen finds that government funding of R&D (research and development) - and defence-related R&D in particular – causes significant increases in the level of privately funded R&D. The study measures the ultimate effect on productivity growth using industry-country level data from OECD countries and firm-level data from France. Among the findings: 

    • Increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm.
    • A 10% increase in government-financed R&D generates 4.3% additional privately funded R&D.
    • An analysis of wages and employment suggests that the increase in private R&D expenditure reflects actual increases in R&D employment, not just higher labour costs.
    • Estimates imply that some of the existing cross-country differences in private R&D investment are due to cross-country differences in defence R&D expenditures.
    • There is evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries.
    • Increases in private R&D induced by increases in defence R&D result in significant productivity gains.

    Figure 1: Defence R&D as percent of GDP in the US, Germany, Japan and France 

    Note: This figure shows the defence related, government funded total R&D as a share of GDP. 


    • THE MENTAL HEALTH EFFECTS OF RETIREMENT: Evidence from the Netherlands  

    THE MENTAL HEALTH EFFECTS OF RETIREMENT
    Matteo Picchio, Jan C. van Ours    
    CEPR DP No. 14135 | 19 November

    A new CEPR study by Matteo Picchio and Jan van Ours assesses the effects of retirement on people’s mental health using a novel research design based on the eligibility age for the state pension in the Netherlands. Among the findings: 

    • The mental effects of retirement vary by gender and marital status. 
    • The retirement of partnered men has positive effects on the mental health of both themselves and their partners. 
    • Single men retiring experience a drop in self-perceived health but also in other indicators of mental health. For single women, the health effects are much smaller.
    • The retirement of women has hardly any effect on their own mental health or the mental health of their partners. 
    • Part of the effects seems to be driven by loneliness after retirement.

    The authors conclude that allowing for more flexibility in retirement policies would have welfare improving effects.



    THE US-CHINA TRADE WAR IS HARMING COMMUNITIES IN THE UNITED STATES: The impact of retaliatory tariffs

    Michael Waugh       
    19 November 2019

    The US-China trade war is leading to concentrated losses in consumption and employment for communities in the United States that are the most exposed to Chinese retaliatory tariffs. These are the findings of a new study by Michael Waugh, who examines a different hardship of the US-China trade war: the retaliatory tariffs that affect income and production opportunities for directly affected farmers and workers. 

    Waugh argues that unlike price effects, which are spread across the population, this ‘labour income channel’ is concentrated and differs across counties in the Untied States. Those who lost their position of comparative advantage for the Chinese market due to tariffs bear this burden of the trade war alone. 


    DON’T BLAME BRUSSELS IF YOU DON’T BENEFIT FROM EU COHESION POLICY!

    Riccardo Crescenzi, Mara Giua        
    26 November 2019

    Despite the European Commission’s claims that its cohesion policy has had a positive impact on beneficiary regions, some member states argue that it is not fit for purpose and have called for a renationalisation of the policy.  

    Writing at Vox, Riccardo Crescenzi and Mara Giua suggests that while there have been some positive effects on regional growth and jobs across the EU as a whole, these have been concentrated in the beneficiary regions of Germany and the UK, and structural problems in the South of Europe remain largely untouched. 

    This uneven distribution of regional impacts along national lines suggests that individual member states have significant responsibilities for the local success (or failure) of the policy.


    WOMEN ARE SIGNIFICANTLY UNDER-REPRESENTED AMONG ACADEMIC ECONOMISTS 

    Emmanuelle Auriol, Guido Friebel, Sascha Wilhelm       
    19 November 2019

    Despite around a third of PhDs in economics in the United States having been earned by women over the last few decades, under 15% of full professors were women in 2017. Writing at Vox, Emanuelle Auriol, Guido Friebel and Sascha Wilhelm argue that a similar ‘leaky pipeline’ exists in Europe. 

    The authors find that in comparison with the United States, European countries have a higher share of women as full professors in their research institutions, but the attrition rate between junior and senior ranks is comparable on both sides of the Atlantic. While the more prestigious research institutions in Europe hire significantly fewer women than the less prominent institutions and there are also important differences throughout Europe, such as the Nordic countries and France scoring much higher on gender equality than Germany and the Netherlands.

     


    THE WORLD TRADE ORGANISATION’S DISPUTE SETTLEMENT AND THE APPELLATE BODY CRISIS: Insider perceptions and members’ revealed preferences

    Matteo Fiorini, Bernard Hoekman, Petros Mavroidis, Maarja Saluste, Robert Wolfe        
    20 November 2019

    Writing at Vox, Bernard Hoekman and colleagues analyse the results of a recent survey of World Trade Organisation (WTO) Members’ perceptions of the Appellate Body and the role it plays (or should play) in the dispute settlement system. 

    Responses reveal strong support for the basic design of the dispute settlement system, but also find that the US is not alone in perceiving that the Body has gone beyond its mandate. Although no other WTO Member supports the approach of the US in blocking new appointments to the Appellate Body as a means of addressing a perceived institutional imbalance. 


    THE REAL, SPECTACULAR AND UNDERESTIMATED TRADE EFFECTS OF MEMBERSHIP OF THE WTO

    Mario Larch, José-Antonio Monteiro, Roberta Piermartini, Yoto Yotov         
    20 November 2019

    Membership of the World Trade Organization (WTO) has increased trade between members by 171% and trade between member and non-member countries by about 88% on average. These are among the findings of Roberta Piermartini and colleagues, who argue that previous studies may have underestimated the positive role of membership to the WTO by not considering the non-discriminatory nature of their agreements. Besides market access, the agreements provide greater transparency and predictability that benefit WTO members and non-members alike. 


    FISCAL FACTORS THE DRIVING FORCE BEHIND RECENT VARIATION IN GLOBAL IMBALANCES

    Menzie Chinn, Hiro Ito         
    21 November 2019


     

    Global imbalances have returned to the top of policy discussions. A study by Menzie Chinn and Hiro Ito uses data from developing and industrialised countries covering 1972-2016 to show that fiscal factors, rather than savings glut variables, have accounted for a noticeable share of the recent variation in imbalances, including in the United States and Germany. 

    The results of the study show that the contribution of demographic factors is large for industrialised countries but not for emerging markets, while net official flows shape global imbalances in both developing and industrialised countries. 


    EUROPE’S MIRACLE RECOVERY AND RECONSTRUCTION AFTER THE SECOND WORLD WAR – And how Eastern Europe was left behind

    Tamas Vonyo       
    21 November 2019

    Despite the unprecedented destruction and loss of life caused by the Second World War, the quarter century that followed is known as the most remarkable period of economic growth and social progress in Europe. 

    Writing at Vox, Tamas Voyo explains the three factors that made this paradox possible: the strong foundations of economic recovery in Western Europe, vital support for the reconstruction of European trade and cooperation, and Allied support for the revival of the German economy. In contrast, Eastern Europe could barely recover due to the demographic disaster from the war.

    This column is a lead commentary in the VoxEU Debate ‘The Economics of the Second World War: Eighty Years On


    RISE IN GLOBAL TRADE OF SERVICES BOOSTS FIRM PERFORMANCE BUT LOW-SKILLED WORKERS SUFFER: Evidence from Finland

    Andrea Ariu, Katariina Nilsson Hakkala , J. Bradford Jensen, Saara Tamminen        
    22 November 2019

    Global trade in services has increased six-fold between 1990-2017. Evidence from Finland shows that firms' ability to buy the services they need at a lower cost has been bad news for low-skill employees, but helped firms improve their sales, assets, service exports and likelihood of staying in business. 

    These are the findings of a new study by Andrea Ariu and colleagues who highlight the need for public policies to facilitate and enable worker reallocation.  


    RETURNING MIGRANTS BOOST THE ECONOMY: Evidence from Yugoslavia

    Dany Bahar, Andreas Hauptmann, Cem Özgüzel, Hillel Rapoport       
    22 November 2019

    A new study by Dany Bahar and colleagues uses the case of refugees returning to the former Yugoslavia from Germany after the end of the Balkan wars to explore the role that returning migrants play in shaping the industrial development of their home country. The results support the idea that migrants are drivers of knowhow and technology transfers between countries.  


    GERMANY AND FRANCE: The case for structural convergence in the euro area

    Declan Costello, Annika Eriksgård Melander, Martin Hallet        
    22 November 2019

    Over the past ten years there has been a substantial rise in income per capita differences between Germany and France. But it is not a given that the German economy will continue to outperform the French one, and indeed the picture has changed during 2019. 

    Writing at Vox, economists from the European Commission argue that structural divergences between member states in the euro area contributed to nominal and real divergences, and suggests that the transformation of the European economy, central to delivering on Europe’s model of more balanced, inclusive and sustainable growth, will have to come from policies at both the EU and member state level. 


    HUMANITARIAN AID AND POLITICAL MOTIVES: Favouritism towards the birth regions of politicians 

    Christian Bommer, Axel Dreher, Marcello Pérez-Alvarez         
    23 November 2019

    Should political motives play a role in the allocation of aid and response to natural disasters? Focusing on the allocation of US humanitarian assistance, Axel Dreher and colleagues reveal that disasters that affect the birth regions of leaders of recipient countries receive substantially more funding than other comparable disasters. This suggests that there is a ‘home bias’ in humanitarian aid. 

    MARRIAGE-RELATED TAXES AND SOCIAL SECURITY BENEFITS ARE HOLDING BACK AMERICAN WOMEN’S LABOUR SUPPLY

    Margherita Borella, Mariacristina De Nardi, Fang Yang         
    23 November 2019

    In the United States, both taxes and social security benefits depend on one’s marital status and tend to discourage the labour supply of the secondary earner. Using information on US cohorts born in 1945 and 1955, Margherita Borella and colleagues show that eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle and reduces the participation of married men after age 60. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population.

    MARRIAGES BETWEEN IMMIGRANTS AND NATIVES ENCOURAGE HIGHER ACCEPTANCE OF MINORITY CULTURES: Evidence from Italy 

    Alberto Bisin, Giulia Tura         
    26 November 2019

    Higher socialisation rates in marriages between immigrants and the native population encourage a higher acceptance of minority cultures on the part of the native population, allowing immigrants to maintain their cultural traits more easily. These are the findings of a new study by Alberto Bisin and Giulia Tura, who examine specific migrant communities in Italy, using the language spoken at home as a proxy for cultural-ethnic transmission. 

    TRUMP'S TRADE WAR AND HEALTH POLICIES ARE VOTE-LOSERS FOR THE REPUBLICAN PARTY: Evidence from the 2018 midterm elections

    Emily Blanchard, Chad Bown, Davin Chor        
    26 November 2019

    Republican candidates lost support in the 2018 US congressional election in counties more exposed to trade retaliation, but saw no commensurate electoral gains from US tariff protection. These are among the findings of a new study by Emily Blanchard, Chad Bown and Davin Chor, which examines the relationship between local exposure to President Trump’s trade war and US voting patterns. 

    The results show that a combination of the trade war and attempts to repeal and replace the Affordable Care Act may have cost the Republican Party as many as 15 House seats. The producer-side consequences of the trade war may have been responsible for five of the 40 seats lost by Republicans in the 2018 midterm elections. 



    CAN THE STOCK MARKET HELP SAVE THE PLANET? 

    Ralph De Haas interviewed by Tim Phillips, 22 November 2019

    We think about climate policies as moderating or interceding in markets. 

    But new research implies that when stock markets play a bigger part in the economy, polluting industries become cleaner. Tim Phillips asks Ralph De Haas of the European Bank for Reconstruction and Development whether we already have a green finance initiative under our noses



    UNDERSTANDING THE LACK OF CORPORATE INVESTMENT IN EUROPE

    Sebnem Kalemli-Özcan  22 November 2019

    Sebnem Kalemli-Özcan discusses how ten years after the euro crisis, the deleveraging process still affects corporate investment and, ultimately, productivity and growth. She suggests focusing on policies that directly target the very indebted corporate sector.

    A focal point of Sebnem Kalemli-Özcan’s research has been economic growth and productivity in Europe, especially in the aftermath of the sovereign debt crisis. In a striking example of her big-data approach, the research is based on data from ten Eurozone countries, and links firms to banks to sovereigns to quantify the role of financial factors behind sluggish corporate investment and show that debt overhang and rollover risk accounted for 60% of the decline in aggregate corporate investment in post-crisis Europe. 


    WHERE DO WE STAND IN THE FIGHT AGAINST HIV?

    Michèle Tertilt  19 November 2019

    Michèle Tertilt discusses the relationship between sexual behaviour and HIV, and her research suggesting that antiretroviral therapies (ART) will be a key driver to reduce HIV further.

    A recent topic of interest for Tertilt is the relationship between sexual behaviour and HIV. Unlike other HIV studies, Tertilt’s analysis doesn’t assume that people’s behaviour will be indifferent to policy changes. ‘You have to take into account changes in behaviour,’ she says. ‘Here’s where economics comes in.’

    With knowledge about HIV at high levels in Malawi and other sub-Saharan African countries today, Tertilt finds that ART will be a key driver of further reducing HIV. ‘The introduction of antiretroviral drugs is at pretty high levels now,’ she says. ‘Fifty percent of the infected are treated. What we can show is that as soon as enough people are treated, ART becomes a very useful policy to reduce HIV.’