This week from CEPR: September 12

Thursday, September 12, 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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    • HOW TO DEPLOY LIMITED POLICE RESOURCES EFFECTIVELY: Evidence from India

    THE EFFICIENT DEPLOYMENT OF POLICE RESOURCES: Theory and New Evidence from a Randomized Drunk Driving Crackdown in India 
    Esther Duflo, Abhijit Banerjee, Daniel Keniston
    CEPR DP No. 13981 | 03 September

    Should police activity should be narrowly focused on high crime spots, or more widely dispersed? Critics of intense ‘hot spot’ policing argue that it primarily displaces, not reduces, crime. 

    A new study by Esther Duflo, Abhijit Banerjee and Daniel Keniston aims to improve our understanding by using data from a randomised controlled experiment on an anti-drink driving campaign in Rajasthan, India. In each police station, sobriety checkpoints were either rotated among three locations or fixed in the best location, and the intensity of the crackdown was cross-randomised. 

    The results show that rotating checkpoints reduced night accidents by 17%, and night deaths by 25%, while fixed checkpoints had no significant effects. The conclusion is that there is clear evidence of learning, hence police interventions focused on the single location with the highest prior concentration of criminal activity are rapidly undone by the diversion of criminal activity to other areas. 

    In contrast, an intervention spread across multiple, initially less promising, locations causes a significant decrease in road accidents and deaths. But just as drivers learn about the beginning of police enforcement, they also learn that it has come to an end, initiating a slow reversion of driver behaviour and a return to drink driving after the intervention.  


    • TECHNOLOGICAL CHANGE AND SOCIAL CONFLICT: Lessons from the adoption of electricity in Sweden

    MORE POWER TO THE PEOPLE: Electricity Adoption, Technological Change and Social Conflict 
    Kerstin Enflo, Jakob Molinder, Tobias Karlsson 
    CEPR DP No. 13986 | 06 September

    A new CEPR study by Kerstin Enflo, Postdoc Molinder and Tobias Karlsson uses the historical example of a revolutionary new technology – the adoption of electricity – to analyse whether technical change and job destruction drive social conflict and protests. The study focuses on the gradual roll-out of the Swedish electricity grid between 1900 and 1920. Among the findings:

    • The labour saving nature of electricity was followed by an increase of local conflicts in the form of strikes. 
    • But displaced workers were not likely to initiate conflicts. Instead, strikes were most common in sectors with employment growth. 
    • Strikes were offensive rather than defensive in nature. 

    The study concludes that electrification did not result in rebellions driven by technological anxiety. It rather provided workers with a stronger bargaining position from which they could voice their claims through strikes. 

    Figure 1: Rollout of the Swedish Electricity Grid, 1906-1916


    • VAT NOTCHES, VOLUNTARY REGISTRATION AND BUNCHING: Theory and UK evidence

    VAT NOTCHES, VOLUNTARY REGISTRATION AND BUNCHING: Theory and UK evidence
    Li Liu, Ben Lockwood, Miguel Almunia, Eddy H.F. Tam 
    CEPR DP No. 13983 | 05 September

    A new CEPR study by Li Liu, Ben Lockwood, Miguel Almunia and Eddy Tam uses administrative tax records for UK businesses to document both bunching in annual turnover below the VAT registration threshold and persistent voluntary registration by almost half of the firms below the threshold. 

    The researchers develop a conceptual framework that can simultaneously explain these two apparently conflicting facts. The framework also predicts that higher intermediate input shares, lower product-market competition and a lower share of business to consumer (B2C) sales lead to voluntary registration. The predictions are exactly the opposite for bunching. The study tests the theory using linked VAT and corporation tax records from 2004-2014, finding empirical support for these predictions.

    Figure 1: Turnover Distribution around the Registration Threshold

    Note: This figure shows the histogram of companies' turnover net of current-year VAT registration threshold (normalized VAT notch) by pooling data between 2004/05-2014/15. The bin width is £1,000 and the red line denotes the normalized VAT notch. The dashed line is counterfactual density fitted by excluding bins around the VAT notch. 



    THE IMPACT OF BREXIT UNCERTAINTY ON UK FIRMS: Significantly reduced investment and decreased productivity

    Nicholas Bloom, Philip Bunn, Scarlet Chen, Paul Mizen, Pawel Smietanka, Gregory Thwaites
    4 September 2019

    A major new survey of UK firms shows that anticipation of Brexit has already made its mark on the UK economy. The findings reveal that Brexit has gradually reduced investment by about 11% and decreased productivity by 2-5% over the three years since the referendum.

    The UK’s decision to leave the EU has generated a large and persistent increase in uncertainty. Even though the UK is yet to leave the EU, the withdrawal process has had real impact on businesses based in the UK. In part, this is because firms are committing several hours per week of top-management time to Brexit planning. But there is also evidence for a smaller negative between-firm effect as more productive internationally exposed firms have shrunk relative to less productive domestic firms.


    WHAT PROVOKED THE EU MIGRANT CRISIS? Conflict and economic opportunities 

    Cevat Giray Aksoy, Panu Poutvaara 
    5 September 2019

    A new study by Cevat Aksoy and Panu Poutvaara presents the first large-scale evidence on why those who crossed the Mediterranean in 2015 and 2016 left their home countries. The results show that while the vast majority were escaping conflict, the main motivation for a significant number of migrants from countries such as Algeria, Egypt, Morocco and Pakistan was a desire to seek better economic opportunities. 

    Analysing socio-demographic characteristics and motivations, the study finds that people who are educated to secondary or tertiary level are more likely to migrate than people with lower levels of education, particularly when fleeing a major conflict. These people are more likely to head for countries that have more comprehensive migrant integration policies. 


    LABOUR MARKET POLICIES ARE MORE EFFECTIVE IN TIMES OF ECONOMIC GROWTH AND FOCUS ON BUILDING HUMAN CAPITAL 

    Eduardo Levy Yeyati, Martín Montané, Luca Sartorio 
    3 September 2019

    Governments around the world spend a large portion of their budgets on active labour market policies aimed at improving access to new jobs and higher wages. A new study by Eduardo Levy Yeyati, Martín Montané and Luca Sartorio presents the first systematic review of 102 experimental interventions comprising a total of 652 estimated impacts. 

    The results show that individualised coaching or follow-up of the participants, training exclusively focused on a specific industry, and the provision of monetary incentives to trainees all correlate with better outcomes in vocational training programmes. The effectiveness of a programme correlates positively with growth and negatively with unemployment. Training programmes tend to be more effective for young people (but there are no significant differences across genders or educational levels).


    PATTERNS OF EMERGING TECHNOLOGIES SHOW RISKIER INVENTIONS HAVE A LARGER TECHNOLOGICAL IMPACT BUT GAIN TRACTION SLOWLY

    Michele Pezzoni, Reinhilde Veugelers, Fabiana Visentin 
    3 September 2019

    New technologies play a crucial role in stimulating economic growth. But when a novel technology appears, it is difficult to predict its later diffusion trajectory in terms of follow-on inventions. 

    A new study by Michele Pezzoni, Reinhilde Veugelers and Fabiana Visentin shows how riskier types of novel technology ideas – those resulting from the recombination of dissimilar, unfamiliar and science-based technology components, while having a larger number of follow-on inventions – require a longer time to kick-off in the initial phase of diffusion.


    HOW ECONOMISTS INFLUENCED THE SECOND WORLD WAR: A VoxEU debate 

    Alan Bollard  5 September 2019

    How did economics and economists of the 1930s and 1940s contribute to war preparations and the waging of war? Alan Bollard describes how economists played a larger role in the Second World War than in any previous conflict. They advanced the methods of public finance and influenced the directions of the war effort. By the end of the war, economists were widely embedded in government and policy-making.

    This study is part of the Vox debate on The Economics of the Second World War: Eighty Years On. Contributing new data and original analytical insights, join the debate here. 

     

    HOW SUPERIOR AIR AND SEA POWER WON THE SECOND WORLD WAR 

    Phillips Payson O’Brien 
    3 September 2019

    Allied victory in the Second World War is usually viewed through the lens of large land battles, from Stalingrad to Kursk to D-Day. But Phillips O’Brien argues that battlefield losses of equipment in these ‘great’ land battles were relatively small and easily replaceable. 

    O’Brien argues that the real effort of the major powers was put into the construction of air and sea weapons. The Allies used their air and sea power to destroy the Axis’s in a multi-layered campaign. This was the true battlefield of the Second World War: a massive air-sea super-battlefield that stretched for thousands of miles. Victory in this super-battlefield led to victory in the war.
     

    This study is part of the Vox debate on The Economics of the Second World War: Eighty Years On. Contributing new data and original analytical insights, join the debate here


    THE EFFECTIVENESS OF CROSS-BORDER COOPERATION IN BANKING SUPERVISION

    Thorsten Beck, Consuelo Silva-Buston, Wolf Wagner 
    4 September 2019

    Following the Global Crisis, countries have significantly increased their efforts to cooperate on bank supervision, the prime example being the euro area’s Single Supervisory Mechanism. But little is known about whether such cooperation helps improve the stability of the financial system. Using panel data for a large sample of cross-border banks, a new study by Thorsten Beck, Consuelo Silva-Buston and Wold Wagner examines whether a higher incidence of supervisory cooperation is associated with higher bank stability.

    The results show that supervisory cooperation is effective, working through asset risk, but not for very large banks, which are the ones that pose the highest risk to financial stability.


    CUTTING PARENTAL LEAVE COSTS FOR FIRMS REDUCES GENDER EMPLOYMENT GAPS: Evidence from Japan 

    Yukiko Asai
    5 September 2019

    A new study by Yukiko Asai explores the relationship between the costs of providing parental leave and labour demand for women of childbearing age, an issue that exacerbates gender gaps in employment. Analysing a series of reforms in Japan in the last two decades, the findings show that a decrease in costs increased permanent employment and the starting wage of women workers.

    The results imply that the higher costs of female employment may have discouraged firms from hiring women workers, holding back progress in the gender wage and employment gaps that these policies were directly designed to promote.


    HOW LLOYD MINTS INFLUENCED MILTON FRIEDMAN: The emergence of monetarism

    Harris Dellas, George Tavlas 
    5 September 2019

    A new study by Harris Dellas and George Tavlas argues that Lloyd Mints – a colleague of Milton Friedman at Chicago – made important, original contributions to Friedman’s monetarist views during his formative years. 

    The research argues that Mints, who taught at Chicago from 1919 to 1953, made important contributions that were later adopted into Friedman’s monetary framework. In addition to his original contributions to monetary economics, there was clear cross-fertilisation of ideas between the two economists after Friedman arrived at Chicago in 1946.


    NEW MONTHLY INDICES OF THE BRITISH STOCK MARKET, 1829-1929

    Gareth Campbell, Richard Grossman, John Turner 
    4 September 2019

    A study by Gareth Campbell, Richard Grossman and John Turner constructs new long-run broad-based indices of equities traded on British securities markets for the period 1829-1929 and combines them with a more recent index to examine the timing of British business cycles and compare returns on home and foreign UK investment. 

    One finding is that the capital gains index of blue-chip companies appears to be a good bellwether of macroeconomic behaviour.


    ARE ECONOMIC DEVELOPMENTS PERMANENT OR TEMPORARY? Implications of the potential confusion for New Keynesian modelling, inflation forecasts, and the post-Global Crisis era

    Alex Cukierman 
    6 September 2019

    Individuals are never fully certain whether economic developments are persistent or temporary. Alex Cukierman argues that this permanent-transitory confusion has pervasive implications. His study demonstrates that the confusion injects the past into even purely forward-looking New Keynesian frameworks, and shows empirically that inflationary forecasts indeed rely on past inflation.


    WHAT MAKES A SUCCESSFUL ENTREPRENEUR? Self-efficacy and the will to achieve 

    Margaret Dalton, Sari Pekkala Kerr, William Kerr 
    6 September 2019

    Do successful entrepreneurs have distinguishing characteristics that set them apart? A new study by Margaret Dalton, Sari Pekkala Kerr and William Kerr makes use of a collaborative US workspace founded in 2001 to survey four groups: entrepreneurs, non-founding CEOs/leaders, inventor employees, and other employees of innovative firms. 

    The results show that entrepreneurs display the greatest tolerance for risk as well as the strongest self-efficacy, internal locus of control and need for achievement. The findings appear to confirm that entrepreneurs do indeed have distinct personalities.


    RISE IN ISLAMOPHOBIC HATE CRIME LINKED TO MEDIA COVERAGE: Evidence from Manchester, England

    Ria Ivandic, Tom Kirchmaier, Stephen Machin 
    6 September 2019

    A study by Ria Ivandic, Tom Kirchmaier and Stephen Machin studies the role of the media in local increases in Islamophobic hate crime following jihadi terror attacks. Data from Greater Manchester Police reveal a spike in Islamophobic hate crime and incidents following ten international jihadi attacks. Other jihadi attacks that were much less prominent in the UK media, but no less lethal, did not generate the same spikes, suggesting that anti-Muslim hate crime is magnified by media coverage. 


    THE SIGNIFICANT POSITIVE EFFECTS OF STUDENT DEBT RELIEF: Evidence from the United States

    Marco Di Maggio, Ankit Kalda, Vincent Yao  
    7 September 2019

    Rising student debt is considered one of the creeping threats of our time. New research examines the effect of student debt relief on individual credit and labour market outcomes. Following debt relief, distressed borrowers reduce their indebtedness by 26% and are 11% less likely to default on other accounts. After the discharge, the borrowers’ geographical mobility and probability of changing jobs increase. Ultimately, their income increases by about $3,000 over a three-year period. 


    DOES GOVERNMENT INVESTMENT IN INFRASTRUCURE AND FISCAL STIMULUS WORK? Evidence from the American Recovery and Reinvestment Act

    Christoph Boehm 
    7 September 2019

    Fiscal stimulus packages typically feature large investment in infrastructure but their effectiveness is debated. A new study by Christoph Boehm analyses the US government’s American Recovery and Reinvestment Act during the Great Recession, which contained provisions to raise spending on highly durable goods such as highway infrastructure, high-speed rail corridors, railroads, airports and broadband. 

    While this investment may be desirable for many reasons, the results show that it isn’t clear that aggregate demand was stimulated. The data suggest that any increase in government demand is offset by shortfalls in private demand, although the effects of government investment can be large in the long run.


    PUZZLING EXCHANGE RATE DYNAMICS AND DELAYED PORTFOLIO ADJUSTMENT

    Philippe Bacchetta, Eric van Wincoop 
    8 September 2019

    The forward premium puzzle is one of many ways in which exchange rate behaviour can contradict economic theory. 

    A new study by Philippe Bacchetta and Eric van Wincoop introduces a model in which delayed portfolio adjustment by investors can address six such puzzles of exchange rate movements. Their findings show that slowness in the reactions of investors has the potential to influence asset prices.


    REPERCUSSIONS AND REGULATORY IMPACT OF FACEBOOK’S PROPOSED LIBRA CURRENCY ARE STILL UNCLEAR

    Barry Eichengreen 
    4 September 2019

    Analysis by Barry Eichengreen assesses the information as yet made available about Libra, including the implications for its exchangeability, scalability, privacy, and security. It is clear that the design of the currency is yet to be finished, and many questions remain about its governance and structure.

    This study is part of a VoxEU debate on the future of digital money. New financial technologies are creating opportunities that could have far-reaching consequences. You can join the debate here.  


    POLITICAL CONNECTIONS BOOST CAREER PROSPECTS IN PUBLIC EMPLOYMENT: Evidence from Brazil

    Emanuele Colonnelli, Mouno Prem, Edoardo Teso 
    9 September 2019

    To protect public sector jobs from becoming instruments of political patronage, employment decisions must be governed by impartial, meritocratic hiring practices. But in many civil service systems, politicians retain broad discretion in personnel decisions. 

    A study by Emanuele Colonnelli, Mouno Prem and Edoardo Teso looks at hiring practices in Brazil, and finds that not only are public sector careers handed out to the most devoted campaign supporters rather than the most competent applicants, but that political connections aid the least capable applicants most.

    ASSESSING THE IMF’S UNCONVENTIONAL MONETARY POLICIES: Issues of limited expertise and high country turnover 

    Charles Collyns, Prakash Loungani  
    9 September 2019

    Charles Collyns and Prakash Loungani present the results of a study by the IMF’s Independent Evaluation Office, which assessed the value provided by the IMF in its advice on unconventional monetary policies over the past decade, many of which were used extensively to deal with the Global Crisis.

    The results show that while in many ways the IMF’s response to an unprecedented challenge to monetary policy-makers was impressive, limited depth of expertise on monetary policy issues and high turnover of country teams were an issue. The IMF could have also done more to explore alternative policy mixes and to support better smaller advanced economics and emerging markets.


    TRUMP’S CHINA TARIFFS: Lessons from first principles of classic trade policy welfare analysis

    Daniel Gros  
    9 September 2019

    Traditional analysis of tariffs in a partial equilibrium setting can tell us much about the welfare consequences of the US-China trade war. In a new study, Daniel Gros argues that as tariffs ratchet up, welfare costs for both sides increase disproportionately. The cost of trade diversion in the United States to less efficient suppliers is likely to overwhelm any terms-of-trade gain the country might enjoy. In all cases, exporters in the rest of the world benefit. 

    THE RISE OF DIGITAL CURRENCY: A VoxEU Debate 

    Tobias Adrian, Tommaso Mancini-Griffoli  
    9 September 2019

    A study by Tobias Adrian and Tommaso Mancini-Griffoli argues that the adoption of new digital means of payment could be rapid and bring significant benefits to customers and society, but that the risks must be tackled with innovative approaches and heightened collaboration across borders and sectors. One approach is for central banks to engage in a public–private partnership with fintech firms to provide a safe, liquid and digital alternative to cash: synthetic central bank digital currency.

    This study is part of the VoxEU debate on the future of digital money. New financial technologies are creating opportunities that could have far-reaching consequences. You can join the debate here.



    THE ECONOMIC HISTORY OF WORLD WAR II

    Mark Harrison, Alan Bollard, Walter Scheidel, Cormac Ó Gráda interviewed by Tim Phillips

    6 September 2019

    Marking the 80th anniversary of the outbreak of the Second World War, some of the authors involved in VoxEU's series, The Economics of the Second World War: Eighty Years On, talk to Tim Phillips about their research.