Location: Global
Closing Wells: Fossil Exploration and Abandonment in the Energy Transition
Despite ambitious climate goals and already substantial stocks of developed fossil energy reserves, development of new fossil energy reserves continues to be high. This raises concerns, as it reinforces the fossil industry’s opportunities and incentives to continue extraction, and may necessitate abandonment of developed fossil reserves to meet climate targets.
SITE Brown Bag Seminar
In the next SITE Brown Bag seminar, Researcher Inge van den Bijgaart will discuss the energy transition, considering fossil exploration and development activities. Inge van den Bijgaart and her co-author in their paper discuss conditions for when the fossil industry will abandon reserves, and establish that continued exploration of fossil resources is not incompatible with abandoning developed reserves. The first-best implementation of a carbon budget always involves reserve abandonment, and thus exploration that pushes developed reserves in excess of the remaining budget. A quantitative assessment reveals that a volume equal to 9-19% of current oil and gas reserves are optimally abandoned, and that, even under a 1.5 ◦C warming target, exploration of new reserves is justified for another decade.
Registration
The link to the seminar will be distributed by invitation only. If you are interested to attend the seminar – please contact site@hhs.se. Follow the instructions below:
- Type the subject box with “Brown bag seminar *INSERT SEMINAR TITLE*”
- Indicate your affiliation and field of interest.
For registered applicants, a Zoom link will be provided prior to the event via email with further instructions.
Speaker
Inge van den Bijgaart, is an Assistant Professor at the Utrecht University School of Economics. Inge’s primary research interests and expertise lie in the areas of environmental and resource economics and growth. Starting with her PhD research, she has developed a portfolio that spans several overlapping themes. These include climate policy and the energy transition, with a focus on the role of innovation and technological change.
* Views represented during the events are those of the author(s) and do not necessarily reflect the views of the FREE Network, or its institutes and partner organisations.
From Russia with Love?
Some recently discovered money laundering schemes have funnelled large amounts of illegal money from former soviet states through European banks. This note briefly describes the evolution of the Anti-Money Laundering (AML) regime for financial institutions, the introduction of which was concurrent with the post-soviet transition and the connected illegal flows of funds. It discusses the effectiveness of the current AML regime – and its ability to detect and seize illegal funds. The brief also highlights some of its deficiencies as well as lack of compliance with its prescriptions. It proceeds to stress that after judging the current framework insufficient, the US recently introduced whistleblower rewards for AML-infringements. Europe might want to follow their lead if it really aims at limiting money laundering.
Introduction
In recent years significant deficiencies in Anti-Money Laundering (AML) compliance have been discovered in some European banks (Spagnolo and Nyreröd, 2021). A notable example is the Danske Bank case that emerged in 2018. Some have called it the largest money-laundering scandal in history: it is estimated that about $230 billion in suspicious funds went through its Estonian branch between 2007 and 2015.
In several of these cases, the sources of a large fraction of the illicit assets were Russia or other former Soviet states (Shaffer and Cassella, 2020).
Prior to the Danske revelations, several schemes have been uncovered that were aimed at laundering illicit money from former soviet states into the western financial system.
In a classic example going back to 2006, about $230 million were stolen in fraudulent tax refunds perpetrated by officials in Russia and then laundered through Moldova, Latvia and then UK shell companies and banks (Browder, 2009). Famously, the tax lawyer Sergei Magnitsky investigated the theft and testified against the fraudsters and was later put in detention for the same tax theft he was investigating. About a year after he was arrested, Magnitsky passed away after allegedly being tortured and denied medical care. This tragic episode gave rise to the Magnitsky Act, which prohibits persons believed to be involved in the theft to enter the US and access its financial system.
Another famous (and partly related) case is the so-called Russian Laundromat (then Global Laundromat), a scheme estimated to have funneled over $70 billion of illegal money out of Russia, through Latvia, Moldova, and then the UK (Tofilat and Negruta, 2019).
Indeed, Russia is widely considered the country with the largest estimated amount of ‘dark’ money hidden abroad, both as a percentage of GDP and in absolute terms (estimated around $1 trillion by Novokmet et al., 2017).
However, the origin of money laundered in the transition region is not limited to Russia. For example, it is estimated that between 2012 and 2014, about $2.9 billion from Azerbaijan were illegally laundered through UK shell companies and then European banks.
Funds from all these schemes appear to have been transacted through Danske bank (Bruun and Hjejle 2018: 33), Swedbank (Clifford Chance 2020: 123), and other European banks.
This evidence warrants some reflection on the effectiveness of the AML framework, particularly in Europe.
The Current AML Regime
The development of the global AML framework has been largely concurrent with the transition from communism and the connected illegal flows of funds.
The Financial Action Taskforce (FATF) was formed in 1989, after an initiative by the G7. FATF’s mission is to develop policies to combat money laundering and blacklist countries that do not comply. The FATF issued its first recommendations in 1999 and continually updates them, most recently in FATF (2021).
These recommendations set out essential measures that countries should have in place to identify money laundering risks, including regulation on preventive measures for the financial and other sectors, powers and responsibilities for competent authorities, coordination of their actions, and the facilitation of international cooperation (FATF 2021: 7).
AML regulation requires financial institutions to know their customers and engage in due diligence to reduce the risk that they onboard criminals seeking to launder money. Information about suspicious transactions and activities should be forwarded to a national financial intelligence unit, usually the financial police. National Financial Services Authorities (FSAs) are usually responsible for enforcing compliance with AML rules – the “preventive” side of money laundering regulation. The “repressive” criminal law or “enforcement” side of the fight against money laundering is usually enforced by the national financial police (Reuter and Truman 2004, Svedberg Helgesson and Mörth 2018).
There are certainly valid questions to be raised regarding the effectiveness of the current AML framework. While the World Bank estimates that between 2 and 5% of global GDP is laundered annually, it is also estimated that less than 1% of the proceeds of crime laundered via the financial system are currently seized by regulators and law enforcement agencies (UNODC 2011: 7).
At the same time, the framework is quite costly to comply with. There have been six EU Directives related to AML. All require legal implementation and impose new demands on banks and other covered institutions. FATF also requires that its members frequently carry out National Risk Assessments, and countries are also subject to Membership Evaluation Reports which imposes additional costs. Compliance costs for banks are estimated in the billions of dollars (Spagnolo and Nyreröd, 2021), and a whole industry surrounding “AML Compliance” has emerged. Part of these costs, not only monetary ones, end up transferred to bank customers.
From a more rigorous policy evaluation point of view, the AML regime is also problematic. There is a remarkable lack of data for assessing the effectiveness of the framework relative to its objectives (see e.g., Halliday et al. 2014, Levi 2018, Levi et al. 2018, Pol 2018, 2020).
Bank’s Failures
A lack of compliance with this preventative framework has been widespread. In Sweden, for example, most large banks have been fined for various degrees of AML deficiencies. Similarly, many banks in other European countries received fines from local and US regulators (in the order of billions of dollars) for failing to comply with this framework, including HSBC, Credit Suisse, Deutsche Bank (multiple times), BNP Paribas, MagNet Bank, and Barclays Bank. Since 2016, the US has issued AML-related fines on eight occasions to banks with headquarters in European countries for an aggregate amount of $1.7 billion (mean $217 million fine; data from violationtracker.org).
In the case studies we discuss in Spagnolo and Nyreröd (2021), most forms of internal controls failed to some extent. Whereas external whistleblowing was rare or non-existent, internal whistleblowers did not manage to rectify the problems either.
Simultaneously, there were often clear red flags that should have alerted board members and executives. At Danske Bank group, for example, returns on allocated capital in the non-resident portfolio at their Estonian branch, where a substantial part of the money laundering occurred, hit 402% in 2013, compared with the 6.9% average for the whole group, a clear red flag (Schwartzkopff, 2018).
Supervisor’s Failures
The extensiveness of AML non-compliance cannot only be traced to negligent banks – it also has to do with the ineffectiveness of the enforcement of AML rules by supervising authorities.
In the cases reviewed in Spagnolo and Nyreröd (2021), supervisors appeared by and large aware of at least part of the AML deficiencies. Oftentimes, banks were given warnings by regulators, yet continued to violate the same rules.
For example, both the Danish FSA and the Estonian FSA seem to have had some knowledge of the AML deficiencies at Danske Bank’s subsidiary already in 2007, with little consequences.
Coordination between regulators has also been poor. The Danish FSA argues that the primary AML oversight responsibility for the Estonian branch should be the local FSA (Finanstilsynet, 2019), while the Estonian FSA retorts that European rules are not as clear and that the Danish FSA at least has some responsibility to oversee the branches of Danske Group (Finantsinspektsioon, 2019).
On September 24, 2018, the European Banking Authority (EBA) opened an investigation to assess whether the Danish and Estonian FSAs have violated any European laws. On April 16, 2019, it voted to reject an internal draft into supervisory failings that allegedly identified several shortcomings in how Danish and Estonian authorities supervised Danske bank. (Brunsden 2019). The EBA supervisory board’s decision to close the investigation without adopting any findings drew criticism from a range of senior policymakers and spurred calls for its reform. The EBA has also been criticized for its reluctance to pass judgment on its members (Bjerregaard and Kirchmaier 2019: 38).
Conclusion
The limited regulatory enforcement and compliance with the current AML system are likely to only marginally increase the cost of money laundering for criminals. Policymakers should thus wonder whether the current system is delivering value for money. There could be different ways to improve it. Increased fines for non-compliance may for example induce covered entities to comply with the AML framework to a greater extent.
Moving forward, the inconsistent enforcement of AML rules has led experts and policymakers to suggest centralizing some supervision and enforcement of AML regulation at the EU level (Kirschenbaum and Véron 2018, 2020; Unger 2020; JPP 2019; EC 2020, p.8), and improving information sharing between supervisors.
We believe these measures may not be sufficient for facilitating compliance with AML, while imposing substantial enforcing costs.
One way to increase AML compliance at a relatively low cost could be introducing whistleblower reward programs, as done in the US early this year (Nyreröd and Spagnolo, 2021). These programs offer substantial monetary rewards, often in the order millions of dollars, for information on non-compliance, and have proven extremely effective in combating fraud against the government, tax evasion, and securities fraud. While national EU supervisors may not have sufficient resources or competence to manage such programs, centralized actors such as the European Commission appear able to do so. If we see more centralized supervision, together with increased resources and competence, a well-designed and properly implemented whistleblower reward program may become a highly effective way to fight money laundering in the EU.
References
- Bjerregaard, E., and T. Kirchmaier (2019). “The Danske Bank Money Laundering Scandal: A Case Study.” Copenhagen Business School.
- Browder, W (2009). “Hermitage Capital, the Russian State and the Case of Sergei Magnitsky.” REP Edited Transcript, Chatham House.
- Bruun and Hjejle (2018). “Report on the Non-Resident Portfolio at Danske Bank’s Estonian Branch.” Danske Bank.
- Brunsden, J. (2019). “EBA faces calls to reform after dropping Danske Bank probe.” Financial Times, April.
- Clifford Chance (2020). “Report of Investigation on Swedbank AB (publ).” Swedbank.
- EC (2020). “Communication from the Commission on an Action Plan for a Comprehensive Union Policy on Preventing Money Laundering and Terrorist Financing.” 7.5.2020 C(2020) 2800 final.
- FATF (2021). “International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations.”
- Finanstilsynet (2019). “Report on the Danish FSA’s Supervision of Danske Bank as Regards the Estonia Case.” Danish Financial Services Authority.
- Finantsinspektsioon (2019). “Response to the Report on the Danish FSA’s Supervision of Danske Bank.” Estonian Financial Services Authority.
- Halliday, T. C., M. Levi, and P. Reuter (2014). “Global Surveillance of Dirty Money: Assessing Assessments of Regimes to Control Money-Laundering and Combat the Financing of Terrorism.” Center on Law & Globalization. University of Illinois College of Law and American Bar Foundation.
- JPP (2019). “Joint Position Paper by the Ministers of Finance of France, Germany, Italy, Latvia, the Netherlands, and Spain.”
- Kirschenbaum, J., and N. Véron (2018). “A Better European Architecture to Fight Money Laundering.” Peterson Institute for International Economics. Policy Brief 18-25.
- Kirschenbaum, J., and N. Véron (2020). “A European Anti-Money Laundering Supervisor: From Vision to Legislation.” Peterson Institute for International Economics, January.
- Levi, M. (2018). “Punishing Banks, Their Clients, and Their Clients’ Clients.” In King, C., C. Walker, and J. Gurulé (eds.) The Palgrave Handbook of Criminal and Terrorism Financing Law. Palgrave Macmillan.
- Levi, M., P. Reuter, and T. Halliday (2018). “Can the AML System Be Evaluated Without Better Data?” Crime, Law and Social Change, 69(2): 307–328.
- Novokmet, F., Piketty, T., and Zucman, G. (2017). “From Soviets to Oligarchs: Inequality and Property in Russia, 1905-2016”, NBER Working Paper Series, nr23712.
- Nyreröd, T., and G. Spagnolo (2021). “Myths and Numbers on Whistleblower Rewards.” Regulation and Governance, 15(1): 82–97.
- Pol, R. (2018). “Uncomfortable Truths? ML=BS and AML=BS².” Journal of Financial Crime, 25(2): 294–308.
- Pol, R. (2020). “Response to Money Laundering Scandal: Evidence-Informed or Perception Driven?” Journal of Money Laundering Control, 23(1): 103–121.
- Reuter, P., and E. M. Truman (2004). Chasing Dirty Money: The Fight Against Money Laundering. Peterson Institute for International Economics.
- Schwartzkopff, F (2018). “Danske’s 402% Return Should Have Raised Red Flag, FSA Says.” Bloomberg, May.
- Shaffer, Y. and Cassella, S (2020). ” The Causes, Effects, and Manifestations of the Money Laundering Problem in the Former Soviet Union.”, Georgetown Journal of International Affairs, February 21.
- Spagnolo, G., and T. Nyreröd (2021). “Money Laundering and Whistleblowers.” SNS Report.
- Svedberg Helgesson, K., and U. Mörth (2018). “Client Privilege, Compliance and the Rule of Law: Swedish Lawyers and Money Laundering Prevention.” Crime, Law and Social Change, 69(2): 227–248.
- Tofilat, S., and V. Negruta (2019). “The Russian Laundromat – a $70 billion money-laundering scheme facilitated by Moldovan political elites.” Transparency International Moldova.
- Unger, B. (2020). “Improving Anti-Money Laundering Policy.” Study requested by the ECON Committee, European Parliament.
- UNODC (2011). “Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crimes.” Research Report, United Nations Office on Drugs and Crime.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Sustaining Global Value Chains
The Stockholm Institute of Transition Economics (SITE) together with Mistra Center for Sustainable Markets (Misum), Center for Asian Studies and Stockholm Sustainable Finance Centre (SSFC) cordially invite you to join a hybrid seminar together with Erik Berglöf, Chief Economist at Asian Infrastructure Investment Bank. He will present (in person) the Asian Infrastructure Finance 2021 report: Sustaining Global Value Chains. Berglöf will share the report’s conclusions on the nexus between supply chains and infrastructure development, highlighting the policies and investment needed to improve global value chains (GVCs) post pandemic.
COVID-19 and the Impact of Disruption to Global Value Chains
In early 2020, the sudden emergence of the coronavirus disease (COVID-19) brought first health and then economic shocks of such unprecedented scale and impact that the global community’s ability to withstand them has been severely tested. As these shocks hit country after country, virtually all industries and the flow of goods worldwide were disrupted. The impact of disruption to GVCs on normal business and people’s lives has never been so acutely felt.
The Asian Infrastructure Finance 2021 Report
Berglöf together with co-authors examines how Asian economies, to different extents and in different ways, have integrated global value chains (GVCs) into their growth models. The report emphasizes how critical infrastructure quality and capacity are to the agility and resilience of GVCs, as examined against the backdrop of the COVID-19 pandemic, increased trade tensions, rapid technological development, environmental pressures, and other factors. Using case studies and research, the AIF 2021 report illustrates how GVCs provide opportunities for countries and companies to become internationally competitive, in part through technological advancements and efficiency improvements. The report also highlights how GVC firms can drive decarbonization across countries and sectors and how green infrastructure, consistent with net zero transition, will become a source of competitive advantage and the key to sustaining future GVCs.
Erik Berglöf
Erik Berglöf, Chief Economist at the Asian Infrastructure Investment Bank (AIIB) and former director at the Stockholm Institute of Transition Economics. Berglöf is the AIIB’s inaugural Chief Economist. Prior to joining the Bank in September 2020, he was Director of the Institute of Global Affairs, London School of Economics, and Chief Economist of the European Bank for Reconstruction and Development from 2006 to 2015, where he was part of creating and co-led the Vienna Initiative, a European crisis response team credited with mitigating the impact of the 2008 Global Financial Crisis. He is an expert in transition economics and institutional transformation through private sector development. Berglöf is also the former Director of the Stockholm Institute of Transition Economics and a former Professor at Stockholm School of Economics.
Registration
The event will take place in a hybrid format and will be open to the public through digital channels. Please register via the Eventbrite registration form. The seminar will be held in room KAW at Stockholm School of Economics main building at Bertil Ohlinsgata 5. The date is December 20, 2021, and is preliminarily planned from 16.00-17.30, CET, Stockholm time. The seminar will be moderated by Torbjörn Becker, Director of the Stockholm Institute of Transition Economics. The report presentation will be followed by a Q&A session.
Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Linking the 4E’s: Entrepreneurship, Ecosystems and Emerging Economies
FREE Network member institute BEROC will host an Open Lecture with Dr Maribel Guerrero, Professor of Entrepreneurship, Economic and Business Faculty at Universidad del Desarrollo. During the lecture, Prof Guerrero will discuss what configuration of entrepreneurship ecosystems can stimulate the creation of high-growth ventures.
The question of the influence of environmental conditions on entrepreneurial activity in the last 5 years has been widely discussed in the academic community. During the Open Lecture, Dr Maribel Guerrero will explain why diversity in entrepreneurship and context is significant, what conditions are favourable and what – less favourable. The lecture will include both research details and implications for stakeholders.
Prof. Guerrero holds a Ph.D. and M.Phil. in Business Economics at the Department of Business of the Autonomous University of Barcelona (Spain). Her research interests focus on:
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- the determinants of intra/entrepreneurial activities developed in/from the public and private organizations
- the impacts of intra/entrepreneurial activities on the societal, economic and technological development of economies
- the configuration of entrepreneurial and innovative ecosystems
- entrepreneurial diversity in emerging economies
To join the open lecture, please register here
BEROC (Kyiv) conducts academic and applied research, arranges educational programs on modern economics and other outreach activities. BEROC aims to bridge the gap between the global academic world and the Belarusian economic community, thus providing Belarusian scholars with access to the international state-of-the-art methods, expertise and knowledge.
Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
In Memoriam János Kornai: a leading economist of post-socialist transition in the twentieth century has passed away at age 94
October 2021 has brought sad news to everyone interested in the transition region and the economics profession more generally. János Kornai, one of the best known Eastern-European economists and one of the founders of transition economics, has passed away at the age of 94.
János Kornai (1928 – 2021) was famous for his work on, and critique of, the socialist economic system, post-socialist transition, and comparative economics. His ideas, originating from his analysis of the shortcomings of a planned and socialist economy – such as “economics of shortage” and “soft budget constraint” – have influenced not only transition economics but also many other economic fields. The magnitude of his contribution and the extent of his influence on economic thought are well illustrated in Public Choice 2021’ special issue in honor of Janos Kornai.
SITE and its academic partners in the FREE Network(LINK) keep contributing to Kornai’s ideas on economic transition and growth. Many of the FREE Network conferences and FREE Policy briefs provide important insights on how the region and the field have developed since. In particular, they stress that the transition has neither been smooth nor complete, and that Kornai’s intellectual legacy continues to be an important component of the analysis of the region.
For those interested in economic transition, development, emerging markets, as well as economics in general, on a weekly basis, the FREE Network publishes FREE Policy Brief Series – short and informative analyses on current economic policy challenges in Eastern Europe and emerging markets. The writings are based on academic research papers or policy work.
Female Representativeness and Covid-19 Policy Responses: Political Representation and Social Representativeness
There is anecdotal evidence that countries with female leadership in policymaking are more efficient in combating the Covid-19 pandemic. This paper studies whether countries with high female representativeness in political and social layers respond differently to the Covid-19 outbreak. We explore patterns at a cross-country level, which enables us to consider the variation of gender implicated institutions. Our findings indicate that it is women’s social representation, rather than female political leadership, that has the potential to capture cross-country variation in Covid-19 policy responses. Our study confirms that well-functioning and effective institutions are not established from the top-down but rather from the bottom-up.
Introduction
In light of the Covid-19 outbreak and the resulting actions developed and implemented by countries worldwide, questions have been raised about government policy responses and what can trigger them. The pandemic brought forward the need for measures that help mitigate the spread of the virus such as hand washing, reduced face touching, face mask policies, and physical distancing. In many countries, the implementation of lockdowns and social distancing measures had a large impact on employment, including reductions in working hours, furloughs, and work from home arrangements (Brodeur et al., 2020; Coibion et al., 2020; Gupta et al., 2020). There are notable concerns about the potential damage non-pharmaceutical interventions can inflict on economies and labor markets (Andersen et al., 2020; Kong and Prinz, 2020). Further, the implementation of these measures requires certain institutional and individual behavioral changes. While some countries were successful in developing and implementing policy responses that addressed the challenges of the pandemic, others have experienced considerable difficulties.
There is anecdotal evidence suggesting that countries with female leadership in governmental policies are more efficient in combating the Covid-19 pandemic. Several articles from prominent media outlets, such as CNN, The Conversation and Forbes, hypothesize that female leaders are systematically better at managing the pandemic and that this divergence can be attributed to gender differences in management style and risk-taking behavior.
This policy paper explores whether countries distinguished by higher female representation in government policies, both in development and implementation, responded differently to the Covid-19 outbreak, and if so, how the response differed from other countries. For this purpose, we identify two layers of female representation: political representation and social representativeness. The layer of political representation considers the role of women’s representation in public policy design and implementation at the top level of executive and legislative institutions. Social representativeness captures women’s representativeness in different layers of society and spheres of life. It reflects social norms, legal inequality between men and women in different spheres of private, economic, and business life, as well as realized gender inequality, e.g., in labor market participation, education, or local leadership.
With respect to political representation, we address the question of whether countries distinguished by a higher female representation at top executive and legislative levels differ in terms of policy responses to Covid-19. With respect to social representativeness, we aim to capture the variation in these responses that may originate from differences in the expected reaction of the public, which in turn is driven by women’s representativeness in different layers of society. We derive evidence-based conclusions capturing the role of female leadership at the country’s executive and legislative level, as well as the role of gender representativeness in other layers and institutions of society.
The motivation for this research stems from the extensive literature on differences in values and social attitudes between men and women. For example, women have been shown to be more trustworthy, public-spirited, and likely to exhibit ‘helping’ behavior (Eagly and Crowley, 1986), vote based on social issues (Goertzel, 1983), score better on ‘integrity tests’ (Ones and Viswesvaran, 1998), take stronger stances on ethical behavior (Glover et al., 1997; Reiss and Mitra, 1998) and behave more generously when faced with economic decisions (Eckel and Grossman, 1998). Thereby, one may ask to which extent these differences transmit to public policies in societies where women are better represented, either politically or socially. While our study primarily concerns Covid-19 policy responses, we discuss other related literature on the relationship between women’s representativeness and public policy in the next section.
Our analysis shows that it is the women’s social representativeness layer, which can explain government reactions to the Covid-19 pandemic. This goes in line with the institutionalist literature, suggesting that more a gender-balanced character of institutions translates into policy measures and related outcomes. With this finding, our study suggests further evidence on the central role of institutions. Consistent with the existing evidence, we claim that well-functioning and effective institutions are not established from the top-down, but rather from the bottom-up (Easterly, 2008; Dixit, 2011; Greif, 2006). In such institutions, women’s participation in labor markets, businesses, and other spheres is essential as these are factors that distinguish countries in their response to the pandemic. While the evidence provided is suggestive, it opens further avenues for studies to assess causal relationships.
Covid-19 Policy Measurements
To conduct our analysis, we collect data from a number of different sources. For data on the Covid-19 situation and government policy responses, we use the Our World in Data portal. This online platform compiles a number of data sources, most of them updated on a daily basis. Statistics on female participation and leadership is retrieved from the World Bank and UNDP. Summary statistics of the variables are reported in Table A1 of the Appendix.
The policy response variables are based on a number of different measures implemented by national governments. These are aggregated into three composite indices: Stringency, Containment & health, and Economic support. (The index methodology can be found here.) We present the components of the three indices in Table 1 and a detailed description of the policy measures and their scoring in Appendix C.
As seen in Table 1, the Stringency and Containment & health indices have some common dimensions; containment & closure policies (C1 – C8) and public information campaign (H1). Both are rescaled to a value from 0 to 100 (100 = strictest). The Economic support index records measures such as income support and debt/contract relief and does not share any common dimensions with the other two policy response indices. The scale of the index also ranges from 0 to 100 (100 = full support). The extent of heterogeneity in government policy responses across countries is illustrated in Figures 1 – 3. While containment and closure policies are stricter in many Asian and Latin American countries, economic support is more extensive in many European countries, Canada, New Zeeland, and few other countries.
Table 1. The structure of the Covid-19 policy measurements.
Figure 1. Stringency Index
Figure 2. Economic support index.
Figure 3. Containment & health index.
Female Representativeness: Layers and Indicators
Multiple studies in economics and political science suggest that the gender of public officials shapes policy outcomes (Chattopadhyay and Duflo, 2004; Iyer et al., 2012; Svaleryd, 2009). Evidence suggests that increasing the number of women in higher ranks of public administration (legislative bodies and ministries) has a substantial impact on the political office and policymaking (Borrelli, 2002; Davis, 1997; Reynolds, 1999). On the other hand, a number of studies demonstrate that gender has no association with policy outcomes (Besley et al., 2007; Besley and Case, 2003; Bagues and Campa, 2021). The role of the institutional setting and environment can, thus, be decisive in this regard. Women are also found to be more concerned about social policy issues and prefer higher social spending than men (Lott and Kenny, 1999; Abrams and Settle, 1999; Aidt and Dallal, 2008). Further, women are more likely to use a collective or consensual approach to problem and conflict resolution rather than an approach founded on unilateral imposition (Rosenthal, 2000; Gidengil, 1995).
In our study, the political representation layer is measured as female leadership at a country’s executive level (representation in government cabinets) and participation at the legislative institution (parliament) level. To assess this, we consider the following indicators: 1) the presence of a female president or prime minister and proportion of women in ministerial positions, and 2) women’s representativeness in legislative bodies measured as the proportion of seats held by women in national parliaments. The variation of these indicators across countries is illustrated in Figures B4 – B6 in the Appendix.
Our approach to social representativeness is in line with social role theory. This framework provides a theoretical explanation of a structural approach to gender differences (Eagly, 1987; Eagly and Karau, 2002; Wood and Eagly, 2009). It claims that men and women behave according to stereotypes associated with the social roles they occupy, and these differences can, in turn, influence the role of women in local governance and leadership. In line with other research on gender, the social role theory proposes a rigorous framework for analyzing the gendered aspect of government organizations. For instance, evidence shows that women tend to be more collaborative and democratic, hence demonstrating a more caring and community-oriented behavior (Eagly and Johannesen-Schmidt, 2001).
The gender aspect of local governance indicates that the personal preferences and opinions of leaders predominate and shape policymaking (Besley and Coate, 1997). Female leaders (including municipality heads) are more inclined to favor the inclusion of citizens in the decision-making process (Fox and Schuhmann, 1999; Rodriguez-Garcia, 2015), implying that the society is a more informed and engaged stakeholder in the public policymaking (Ball, 2009). Given that municipalities are taking on a greater and more interactive role in citizens’ well-being, they become a key channel in reinforcing trust in government. Furthermore, the literature finds an interrelationship between female voters and government outcomes, whereby women’s enfranchisement affects government size and spending (Lott and Kenny, 1999; Miller, 2008, Aidt and Dallal, 2008). As such, this can lead to improvements in government outcomes and policy effectiveness. The evidence from Bloomberg’s Covid-19 Resilience Ranking suggests that success in containing Covid-19 while minimizing disruption appears to rely more on governments fostering a high degree of trust and societal compliance.
Furthermore, the patterns of gender relations in societies reflect formal and informal institutional rules and policies. Gender equality enhances good governance and helps to further improve relationships between government and citizens (OECD 2014). Similarly, Elson (1999) argues that labor markets are structured by practices, norms, and networks that are “bearers of gender”. Societies with better legal frameworks for women have more balanced gender participation in labor markets, governance, and leadership, along with more equal gender roles and less gender-biased stereotypes. We anticipate that better representation of women in policymaking in such societies is also reflected in the choice and effectiveness of Covid-19 policy measures.
Building on the above theories explaining the relevance of women’s representativeness in diverse societal layers for policy development and implementation, we identify three indices that have the potential to capture the effect of social representativeness – Women, Business and the Law index (WBLI), Gender Development Index (GDI) and Gender Inequality Index (GII). The WBLI is composed of eight indicators, covering different areas of the law related to the decisions women make at various stages of their career and life. These indicators include mobility, workplace, salary, marriage, parenthood, entrepreneurship, assets, and pension. Hyland et al. (2020) show that, globally, the largest gender inequalities are observed in the areas of pay and parenthood. That is, women are most disadvantaged by the legal system when it comes to compensation and how they are treated once they have children. The index scales from 0 to 100 (100 = equal opportunities). The diagram in Figure 4 illustrates how the components of the WBLI index measure key activities of economic agents throughout their life.
Figure 4. The linkages of 8 indicators in Women, Business and the Law index (WBLI)
The second index, the GDI, measures gender inequality in the achievements in three basic dimensions of human development: Health, measured by life expectancy at birth; Education, measured by expected years of schooling for children and mean years of schooling for adults aged above 25; and Command over economic resources, measured by estimated earned income. The same dimensions are included in the Human Development Index (HDI), and the GDI is defined as the female-to-male HDI ratio (i.e. perfect gender equality corresponds to a GDI equal to one).
Turning to the third index measuring social representativeness, the GII reflects gender-based disadvantages in the following dimensions—reproductive health, empowerment, and the labor market. The index measures the loss in potential human development due to gender inequality in achievements across these dimensions. It ranges from zero, where women and men fare equally, to one, where one gender fares as poorly as possible in all measured dimensions. One of the dimensions of the GII, women’s empowerment, has a sub-dimension – “Female and male shares of parliamentary seats”, one of our indicators measuring political representation. Generally, we do not consider the two layers being as mutually exclusive, but intersections are expected to be minimal.
Central to our study, the three indices capturing social representativeness in a country encompass the institutional quality of its society from a gender development perspective. The distribution of each index across countries is shown in Figures B1 – B3 (See Appendix B).
Women’s Representativeness and Covid-19 Policy Responses: Partial Correlation Analysis
In this section, we explore the relationship between Covid-19 policy responses and the measures of political representation and social representativeness. For this purpose, we explore (i) correlations between the indicators and indices of the political and social representation layers and (ii) partial correlations between these measures and policy response indices.
We start with a correlation analysis of the different indicators in the layers. It shows that the WBLI is in high correlation with other representativeness variables. This index captures the legal equality between women and men which has been shown to be “associated with a range of better outcomes for women, such as more entrepreneurship, better access to finance, more abundant female labor supply, and reductions in the gender wage gap”. (WB, 2021). One can think of the GDI and GII indices, as well as the political representativeness indicators, as reflections of a broad policy framework in diverse areas of social, business, and legal activities. A legal environment that promotes gender equality, even if not sufficient by itself, is likely to lead to progress in these areas. Indeed, Hyland et al. (2020) show that greater legal equality between men and women is associated with a lower gender gap in opportunities and outcomes, fewer female workers in vulnerable positions, and greater political representation of women. This way, the WBLI may capture key predispositions for women’s representativeness in society. Further, Hyland et al. (2021) show that the WBLI index is in high (partial) correlation with country GDP per capita, polity score, legal origin, religion and geographic characteristics. This evidence suggests that the WBLI may have the capacity to reflect important country characteristics which ultimately shape cross-country institutional variation.
Table 2. Scatterplot table for GDI, GII and Women, Business and the Law Index, Proportion of seats in parliament held by women and Proportion of ministerial seats held by women.
Next, we explore partial correlations of these indicators with Covid-19 policy responses (Table 3). In this analysis, we control for a number of factors that potentially confound the relationship between a particular policy response and representation layer. Specifically, we control for (i) the number of infected cases per million inhabitants, (ii) the number of deaths per million, (iii) GDP per capita, and (iv) life expectancy. The number of infected cases and deaths enter the model in order to control for country differences in the spread and consequences of the virus. GDP per capita captures the stage of country development, accounting for cross-country differences in resource capacities and constraints. Both of these control variables are claimed to have an important role in Covid-19 related research (Coscieme et al., 2020; Aldrich and Lotito, 2020; Elgar, Stefaniak and Wohl, 2020; Gibson, 2020; Conyon and Thomsen, 2020). Life expectancy is an important proxy for country inhabitants’ resilience against the virus, conditioned by health and health infrastructures.
Significant correlations are observed between the WBLI and the three policy response indices. The correlation between the WBLI and Stringency (and Containment & health) index is negative, implying that lighter restrictions have been imposed in countries with better business and legal conditions for women. A positive correlation is observed between the WBLI and the economic support index, suggesting that countries with better conditions for women in diverse business and societal areas have provided more extensive economic support in the pandemic. This finding is in line with existing evidence showing that women are more concerned about social policy issues and prefer higher social spending than men (Lott and Kenny, 1999; Abrams and Settle, 1999; Aidt and Dallal, 2008). Also, lighter restrictions and more generous economic support do not presume any trade-off in terms of the allocation of financial resources constrained by a state budget.
Interestingly, we do not observe significant correlations between policy responses and other indicators of women’s representativeness. The only exception is a correlation between GDI and the Containment & health index, which is significant at the 10% level and hinges heavily on two outliers (if we drop the two outliers, the P-value of the correlation increases from 0.0931 to 0.2735).
Table 3. Scatterplots of policy responses and social representativeness and political representation variables.
In our partial correlation analysis, we do not control for the direct effects of the gender dimension of social norms and practices. Social norms, practices, as well as informal and formal rules can, however, explain a substantial part of the gender gap (Hawkesworth, 2003; Mackay, 2009; Franceschet, 2011; Elson, 1999; Froehlich et al., 2020) relevant for making decisions. Our measures of women’s political and social representativeness do not fully cover gender differences in norms and practices. As Hyland et al. (2020) point out, de-jure female empowerment does not necessarily translate into de-facto empowerment, especially in countries with social norms and informal rules that result in low representation of women in diverse societal spheres. The authors indicate that laws are actionable in a short period, while more time is needed to bring changes in social norms. In our paper (Grigoryan and Khachatryan, 2021), we attempt to address this issue by incorporating the Social Institutions and Gender Index (SIGI) into the model and evaluating the confounding effect on the covariates of the model. We show that the WBLI captures the effect of the gender gap owing to social norms and practices on Covid-19 policy responses as measured by SIGI. This result suggests that the endogeneity arising from the omission of a measure of such a gender gap is likely to be minimal.
Discussion and Conclusions
Our correlation analysis suggests that it is the layer of women’s social representativeness that can explain the policy reactions of governments in times of the Covid-19 pandemic. This result is in line with the institutionalist literature on gender inequality and social role theory, which suggests that a more gender-balanced character of institutions translates into policy measures and related outcomes. Among the three indices constituting the social representativeness layer, the WBLI is, by construction, more inclusive in terms of capturing women’s role in diversified societal areas. From Table 2, we observe that the WBLI is the only index that is in strong correlation with all other indicators. We also identify strong dominance of the WBLI in correlations with policy responses: it is the only indicator that is significantly correlated with all three policy response measurements (Table 3).
To conclude, our results establish an association between female social representativeness, as measured by the (legal) equality of opportunities between men and women, and Covid-19 related policies. One potential interpretation of these findings concerns the central role of the gender balance in different institutions and layers of society in understanding policy responses to the Covid-19 pandemic. While it was parliaments and governments that implemented policies, we find that the measures undertaken correlate more strongly with factors related to the social representativeness of women rather than those related to their political representation. This suggests a dominant role of gender-balanced institutions at the ‘grass root’ level in terms of the scale and scope of the crisis response. Naturally, these institutions may result (or be correlated) with more gender-balanced political representation, but the latter alone is not helpful in explaining the variation in the reaction to the pandemic. These results underline the importance of balanced gender representation in the labor market, business, and other spheres of social life. Further investment and development of ‘grass root’ institutions that improve women’s socioeconomic opportunities, could provide a fundamental foundation for policy development in a crisis situation.
There could also be alternative interpretations of our findings. There is rich evidence that the gender dimension is deeply implicated in institutions (Acker, 1992; Chappell and Waylen, 2013; Lovenduski, 2005). Gender norms and gender practices have been shown to have an influence on the operation and interaction between formal and informal institutions (see, for instance, Chappell, 2010; Krook and Mackay, 2011; Chappell and Waylen, 2013) and the gender dimension of political institutions is reflected in their practices and values, hence affecting their outcomes (such as laws and policies), formation, and implementation (for instance, Acker, 1992). In turn, governmental policies and rules shape societal norms and expectations. These considerations imply that our results could be driven by the overall values, culture, and institutions of respective societies. These factors would both result in a more gender-neutral legal environment and ‘grass-root’ institutions, and ultimately, distinguish countries in their response to the Covid-19 pandemic. In this way, our results open an avenue for future studies in this important domain to better understand the causality of observed relationships.
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(The Appendix can be found in the PDF version of the brief)
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Dimensions of Well-being
This brief summarizes the insights shared in the online workshop “Dimensions of Well-being“, where participants presented and discussed their latest research relating to the dimensions of well-being. The two-day workshop was organized by the Stockholm Institute of Transition Economics (SITE) as part of the Forum for Research on Gender Economics (FROGEE) and took place on 28-29 June, 2021.
Introduction
It has been roughly 18 months since the first cases of Covid-19 were reported in Europe. So far the total number of deaths worldwide has passed 4.4 million (John Hopkins University, 2021), unemployment is trending upward in most countries (ILOSTAT, 2021), roughly half of the world’s students have been affected by school closures (UNESCO, 2021), and an alarming increase in domestic violence has been reported across the globe (UN Women, 2020).
It is safe to say that this pandemic crisis has had a multifaceted impact on our lives. Identifying what factors contribute to overall well-being and understanding how they interact with one another is central in designing and implementing solid and effective recovery policies.
Stockholm Institute of Transition Economics invited international experts to an online workshop where they discussed and presented their recent research relating to the dimensions of well-being. The workshop was organized as part of the Forum for Research on Gender Economics (FROGEE).
Well-being in a Pandemic
The government response policies intended to contain the spread of Covid-19 have undoubtedly had a major impact on society. However, estimating the overall effect of these policies on individuals’ well-being is not necessarily straightforward. Economic support policies likely have a positive effect on income and decrease poverty. But at the same time, other responses such as lockdowns and mobility restrictions may not only have an opposite effect on these outcomes but also influence other known determinants of well-being such as social life or education.
Anthony Lepinteur, researcher at the University of Luxembourg, presented his recent work on the well-being consequences of the pandemic policy responses in Germany, France, Spain, Italy, and Sweden. Lepinteur and co-authors link survey data on subjective well-being measures to data on government economic policy and stringency indices. The former index records financial policies such as income support, furlough schemes, and debt relief while the latter measures the strictness of Covid-19 containment and closure policies. The results show that more stringent policies reduce life satisfaction, and this negative effect is stronger for women, the unemployed, and those with relatively high incomes. Economic support policies are found to have no significant impact on reported life satisfaction.
As many countries have experienced major disruptions in many sectors of their economy, concerns have been raised about deteriorating labor markets and the effect this might have on living conditions and, ultimately, the well-being of individuals. Knar Khachatryan, associate professor at the American University of Armenia, shared research studying the impact of Covid-19 on multidimensional deprivation from labor market opportunities in Armenia. Knachatryan and co-authors base their analysis on two surveys from 2018 and 2020. To measure labor market opportunities, they adopt the “Alkire-Foster method” to develop a multidimensional index of labor market deprivation – a basket of indicators explaining an individual’s degree of labor market opportunities (e.g. education, employment status, income, type of work contract, and union membership). With respect to this index, they find that education is the most important determinant of multidimensional labor market deprivation – those having less than a bachelor’s degree are very likely to be deprived in terms of labor market opportunities. The results also show that the pandemic has widened the gender gap in labor opportunities. The number of people classified as deprived has increased more for women than men during the pandemic. This is primarily because women experienced stronger income reductions and more frequent job losses.
Thesia Garner, researcher at the U.S. Bureau of Labor Statistics, discussed how ex-ante levels of well-being have affected the outcomes of economic support policies during the pandemic. More specifically, her study investigates the role of individual’s well-being in determining their reported use of economic impact payments (EIP) in the U.S. Garner and co-author assess well-being using both objective measures (e.g. income sources, employment status) and subjective ones (e.g. depression, financial difficulty, expectations about job-loss or eviction). The findings show that those who report lower levels of subjective well-being are more likely to use the EIP to pay off debt, and this likelihood increases as the well-being measures worsen. Respondents who report having experiences of financial difficulty and negative expectations about the economy are more likely to spend the stimulus on nondurables and tend to allocate it to a wider range of spending categories.
In contrast to the U.S. and most other countries in the world, Belarus’ government offered very little support to its citizens during the pandemic. Lev Lvovskiy, researcher at BEROC, presented findings on how different sectors of the Belarusian economy and society were affected by the pandemic. Using the BEROC/Satio survey data, Lvovskiy and co-authors examine that the country still had sharp drops in mobility and economic shocks mainly caused by lockdowns of major trade partners. The pandemic significantly increased the probability of income reductions and they show that financial distress associates with the incidence of depression of Belarusians.
Gender and Wellbeing
Another central topic discussed at the workshop concerned the gender aspects of well-being and other related topics from gender economics.
An essential channel through which gender differences in well-being can arise is unequal representation in politics. Sonia Bhalotra, professor at the University of Warwick, presented a study on the relationship between maternal mortality and women’s political power in 174 countries. Maternal mortality is the leading cause of death and disability for women aged 15-44, and significantly higher in low-income countries – at levels similar to what high-income countries had in the early 1900s. Bhalotra and co-authors document that the costs of providing access to prenatal health services, antibiotics, and skilled birth attendance are relatively low. They therefore argue that there are likely other barriers to adopting these solutions. Male policymakers might have a weaker preference for preventing maternal mortality or less information on its prevalence and treatment. To gain insight, the authors use a staggered event-study approach and study the effect of gender quota implementations on the maternal mortality ratio (MMR, maternal mortality per birth). They find that, in countries that adopted quotas, the MMR declined by 10% following implementation, and this effect is stronger for larger quotas. Focusing on the mechanisms, the results show that gender quotas lead to a 5-8 percentage point (p.p.) increase in skilled birth attendance, a 4-8 p.p. increase in prenatal care utilization, 6-7 % decline in birth rates, and an increase in girl’s education by 0.5 years.
Elizaveta Pronkina, researcher at Université Paris-Dauphine, also shared findings relating to gender and politics but from a historical perspective. Her research studies historic institutional differences across communist regimes and women’s work experiences. The paper focuses on Lithuania and Poland, two countries that experienced different gender policies under a communist regime. After the second world war, Lithuania was controlled by the central government of the Soviet Union while Poland’s government was able to preserve its independence although being part of the Soviet bloc. Based on anecdotal evidence, the two countries had the same religious and political policies but different enforcement – Lithuania faced a hard and Poland a soft form of communism. To isolate the impact of the Soviet policies on women’s life decisions and account for differences in the countries’ pre-communist era, the authors only include regions that were part of the Russian empire until the end of the first world war. The findings show that women living under the Soviet regime were more likely to educate themselves and have on average two additional years of work experience (by 50 years of age).
A productive environment and reliable social interactions at work are also likely to be formative elements of people’s well-being, and gender might factor in here. Yuki Takahashi, PhD candidate in economics at the University of Bologna, presented his paper on how being corrected by others affects one’s willingness to collaborate with them in future work, as well as gender differences in these responses. Takahashi conducts a quasi-experimental design in which roughly 3000 participants individually and collectively solve a puzzle. The setting allows the researcher to observe individual ability, number of corrections, as well as whether the corrections were good (i.e., a mistake was corrected), or bad (i.e., a good move was corrected). The study analyzes how the different factors affect an individual’s likelihood of being selected as a collaborator in a last puzzle-solving stage where both participants win cash earnings based on joint performance. The results show that both genders respond negatively to a correction, but women more so than men. Men are less likely to collaborate with a person who has corrected their mistake, particularly men with high ability. The gender of the corrector is found not to matter.
Domestic violence (DV) is another gender aspect of well-being that has become particularly concerning during the pandemic. For many victims, lockdowns and curfews have meant more exposure to their perpetrator. Mobility restrictions have also implied more social isolation from family members and friends as well as increased economic distress, two other factors known to exacerbate DV. In a preliminary study presented by Damian Clarke, associate professor at the University of Chile, he and co-authors address the relationship between DV and quarantines in Chile. They use longitudinal data on police DV hotline calls and use of women’s shelters to measure DV incidence, criminal complaints of DV to police to measure reporting, and mobile phone data to measure mobility. Exploiting municipal variation in the timing of lockdown entry and exit, the study shows that lockdowns lead to more DV incidence and less reporting. DV shelter use increased on average by 11% with entry and reversed with exit. DV calls to the police hotline increased by 86% and persists after lockdown exit. DV crime reports decrease by 5% and increases by 10% with exit. Moreover, the authors document that lockdowns activate both DV mechanisms – increased economic distress and decreased mobility. In municipalities where lockdowns had a stronger impact on unemployment and mobility, they also find larger changes in DV.
Expectations About the Future and Parenthood
Two other studies presented at the workshop discussed the relationship between future expectations and well-being. Claudius Garten, researcher at the Technical University of Dortmund, presented findings on the role of homeownership. Garten and co-authors utilize individual-level survey data from 2007 covering 14 European countries. It contains information on homeownership status and wellbeing measures expressed as respondents’ expectations about future living standards five years from today. They find that expectations about future living standards are higher among homeowners relative to renters and strongly associated with the value of housing assets, suggesting that material security through housing ownership works as a channel for future wellbeing. Garten further argued that since most countries included in the sample have experienced rising house property prices and increased rents since 2007, the divergence between renters and owners is likely to be even more significant today, especially in urban areas.
The second presentation that discussed expectations about well-being in later life was by Alina Schmitz, researcher at the Technical University of Dortmund. Unlike housing, which is seen as a form of material security, Schmitz’s study focuses on the role of health infrastructure quality. Availability of care services may be seen as a safety net in case of illness and care dependency and should thus have a positive effect on wellbeing. The study performs a multilevel analysis on the individual, regional and, country level using micro-survey data on individuals’ life satisfaction and macro-data on the availability of long-term care beds, covering 96 regions from six European countries in 2015. The results show that the quality of care infrastructure is significantly related to the wellbeing of those aged above 50. Moreover, care infrastructure is particularly important for the wellbeing of those with health limitations (i.e. those who require that infrastructure either now or in the future).
Parenthood is another factor that is commonly thought of as a source of happiness. Contrary to this idea, European populations are aging rapidly and the young today have fewer children than the generations before them. The reason why people choose to have few children could be several – e.g. high opportunity costs and/or low benefits of having a large family. Is the fertility rate we see in the developed world today a result of the well-being-maximizing decisions of individuals? This is the main question asked in the paper presented by Barbara Pertold-Gebicka, assistant professor at the Institute of Economic Studies at Charles University. Her study utilizes European survey data to investigate the effect of having an additional unplanned child in five developed countries. To measure the effect of an additional unplanned child and deal with the fact that happy individuals tend to have more children, Pertold-Gebicka and co-author compare people who had twin births in their second pregnancy with parents of two children. Apart from life satisfaction, the most common wellbeing measure, the authors construct a second measure of wellbeing denoted as the happiness index – normalized value summarizing five questions about feelings over the last 5 months, interpreted as the relative frequency of positive feelings. They find no significant effect of having a third child on the well-being of parents. However, when separately looking at groups divided by age of children, they find that the effect of having an additional child on well-being is negative for fathers of younger children and positive for those of teenagers. For the parents of younger children, they show that the negative effect of having a third child is likely driven by increased feelings of nervousness and problems relating to accommodation.
Measuring Inequality and Social Deprivation
Some aspects of wellbeing such as feelings of unfairness or social connections can be quite ambiguous to study as they depend on context and are hard to quantify.
Nicolai Suppa, researcher at the Centre for Demographic Studies at the UAB, presented his research aimed to improve the measurement of deprivation in social participation (DSP) and complementing previous work with an additional outcome variable measuring a different dimension of deprivation. The study uses German survey data to measure how often common social activities are performed and then uses an intersectional approach (similar to the “Alkire-Foster method”) to assign individuals as deprived based on if and how often they practice these activities. The findings show that while the DSP measure correlates positively both with income poverty and material deprivation measures, it identifies a different sample of individuals. Being deprived in terms of social participation is associated with a significant loss of life satisfaction, a magnitude comparable to the loss of being unemployed.
Ingrid Bleynat, researcher at Kings College London, also discussed how to improve measurement but presented a study focusing on a different dimension of well-being, inequality. While quantitative approaches may give little account of the detailed mechanisms of inequality and its multidimensionality, qualitative studies often focus on a subset of the population which make results difficult to generalize. Bleynat and co-authors suggest a mixed approach, combining quantitative and qualitative assessments of inequality. They utilize neighborhood-level data on average household income in Mexico City to randomly select five households in each decile of the income distribution and conduct semi-structured interviews in these households to better understand the nuances of inequality. Based on these interviews they construct two qualitative measures. The first is called inequality of lived experiences and measures qualitative experiences in work, education, and health services across the income distribution. The second is called lived experiences of inequality, and measures feelings of stigma, discrimination, and social hierarchy across gender, ethnicity and location. The quantitative data confirms that Mexico City is highly unequal across the income distribution in terms of not only income but also social factors such as housing, health and food security. The results concerning the qualitative measures, such as inequalities in lived experiences or lived experiences of inequality confirm the existing understanding – e.g., that households belonging to the lower deciles are more likely to be mistreated in the public health sector, have a hostile school environment, and worse working conditions, or that women across the income distribution bear most of the childcare responsibilities, – but provide nuanced details on the interaction between material inequality and the reported experiences.
Conclusion
There is no doubt that the impact of Covid-19 on our well-being has been many-sided, and the presentations of the workshop have clearly demonstrated the broad spectrum of related problems and concerns, as well as their variation across institutional, social, political, economic, and cultural contexts.
Although we are well underway, further research and comprehensive data collection on how people have coped with and responded to the pandemic is needed to design sensible recovery policies and incentivize governments to implement them.
On behalf of the Stockholm Institute of Transition Economics, we would like to thank the experts who shared their insightful research and participated in “Dimensions of Well-being“.
List of Participants
- Sonia Bhalotra (University of Warwick)
- Ingrid Bleynat (King’s College London)
- Damian Clarke (University of Chile)
- Thesia Garner (US Bureau of Labor Statistics)
- Claudius Garten (TU Dortmund)
- Barbara Pertold-Gebicka (Charles University)
- Knar Khachatryan (American University of Armenia)
- Anthony Lepinteur (University of Luxembourg)
- Lev Lvovskiy (BEROC)
- Elizaveta Pronkina (University Carlos III)
- Alina Schmitz (TU Dortmund)
- Nicolai Suppa (Centre for Demographic Studies at the UAB)
- Yuki Takahashi (University of Bologna)
Part 1 | Online Workshop on Dimensions of Well-being
Part 2 | Online Workshop on Dimensions of Well-being
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Dimensions of Well-being
The COVID-19 pandemic has affected our well-being in many dimensions. Understanding how these dimensions interact and what factors influence the overall level of well-being can be instrumental in policy design today and in the process of recovery once the pandemic is over. With this in mind, the Stockholm Institute of Transition Economics, the Centre for Economic Analysis and the FREE Network invite you to participate in an online academic workshop on ‘Dimensions of well-being’.
Register
- RSVP: Monday, June 28, 2021, 23:59 (CET, Sweden).
- Location: Online. A link to the webinar will be sent to you 4-5 hours ahead of the start of the webinar.
- Registration: Please register via the Eventbrite platform (see here).
Speakers
The online workshop will be moderated by Michal Myck, Director of the Centre for Economic Analysis (CenEA/Poland).
Day 1
Time: 10:40 – 16:30 CEST, Stockholm time
Gender economics of well-being
- Sonia Bhalotra (University of Warwick)
- Yuki Takahashi (University of Bologna)
- Damian Clarke (University of Chile)
Well-being in the COVID-19 pandemic
- Anthony Lepinteur (University of Luxembourg)
- Lev Lvovskiy (BEROC)
- Knar Khachatryan (American University of Armenia)
- Thesia Garner (US Bureau of Labor Statistics)
Day 2
Time: 9:45 -16:00 CEST, Stockholm time
Identifying determinants of well-being
- Claudius Garten (TU Dortmund)
- Barbara Pertold-Gebicka (Charles University)
Inequality and deprivation
- Ingrid Bleynat (King’s College London)
- Nicolai Suppa (Centre for Demographic Studies at the UAB)
Regions, institutions and later life outcomes
- Elizaveta Pronkina (University Carlos III)
- Alina Schmitz (TU Dortmund)
Program
The program of the webinar includes a special session focused on the consequences of the COVID-19 pandemic for different aspects of well-being. The workshop will be organised as part of the Forum for Research on Gender Economics (FROGEE) supported by the Swedish International Development Cooperation Agency (Sida).
Carbon Tax Regressivity and Income Inequality
A common presumption in economics is that a carbon tax is regressive – that the tax disproportionately burdens low-income households. However, this presumption originates from early research on carbon taxes that used US data, and little is known about the factors that determine the level of regressivity of carbon taxation across countries. In this policy brief, I explore how differences in income inequality may determine the distribution of carbon tax burden across households in Europe. The results indicate that carbon taxation will be regressive in high-income countries with relatively high levels of inequality, but closer to proportional in middle- and low-income countries and in countries with low levels of income inequality.
Introduction
Climate change is one of the main challenges facing us today. To reduce emissions of greenhouse gases, and thereby mitigate climate change, economists recommend the use of a carbon tax. The environmental and economic efficiency of carbon taxation is often highlighted, but the equity story is also of importance: who bears the burden of the tax?
How the burden from a carbon tax is shared across households is important since it affects the political acceptability of the tax. For instance, the “Yellow Vests” protests against the French carbon tax started due to concerns that the tax burden is disproportionately large on middle- and working-class households. Research in economics also shows that people prefer a progressive carbon tax (Brännlund and Persson, 2012).
In this brief, I explore what we know about the distributional effects of carbon taxes and analyze the link between carbon tax regressivity and levels of income inequality in theory and in application to Sweden as well as other European countries.
Carbon Tax Burden Across Households
It is a common finding in the economics literature that carbon taxes are, or would be, regressive (Hassett et al., 2008; Grainger and Kolstad, 2010). However, most of the earlier literature is based on US data, and the US is unrepresentative of an average high-income country in terms of variables that are arguably important for carbon tax incidence. Compared to most countries in Europe, income in the US is high but unequally distributed, carbon dioxide emissions per capita are high, the gasoline tax rate is low, and the access to public transport is poor. If we want to understand the likely distributional effects of carbon taxes across Europe, we thus need to look beyond the US studies.
A recent study by Feindt et al. (2020) examines the consumer tax burden from a hypothetical EU-wide carbon tax. They find that the distributional effect at the EU-level is regressive, driven by the high carbon intensity of energy consumption in relatively low-income countries in Eastern Europe. At the national level, however, carbon taxation in Eastern European countries is slightly progressive due to car ownership and transport fuel being luxuries. Conversely, in high-income countries – where transport fuel is a necessity – carbon taxation is slightly regressive.
That the incidence of carbon and gasoline taxation varies across countries with different levels of income, has been found in numerous studies (Sterner, 2012; Sager, 2019). To understand the source of this variation, we need to identify the determinants of the incidence of carbon taxes.
The Role of Income Inequality
In a recent paper, I, together with Giles Atkinson at the London School of Economics, present a simple model where the variation in the carbon tax burden across countries and time can be determined by two parameters: the level of income inequality and the income elasticity of demand for the taxed goods (Andersson and Atkinson, 2020). The income elasticity specifies how the demand for a good, such as gasoline, responds to a change in income. If the budget share decreases as income increase, we refer to gasoline as a necessity. If the budget share increases with income, we refer to gasoline as a luxury good. Our model predicts that rising inequality increases the regressivity of a carbon tax on necessities. Similarly, we will see a more progressive incidence if inequality increases and the taxed good is a luxury.
To mitigate climate change, a carbon tax should be applied to goods responsible for the majority of greenhouse gas emissions: transport fuel, electricity, heating, and food. To estimate the distribution of carbon tax burden, we must then first establish if these goods are necessities or luxuries, respectively. Gasoline is typically found to be a luxury good in low-income countries but a necessity in high-income countries (Dahl, 2012). Food, in the aggregate, is consistently found to be a necessity. A carbon tax on food would, however, mainly increase the price of red meat – beef has a magnitude larger carbon footprint than all other food groups – and red meat is generally a luxury good, even in high-income countries (Gallet, 2010). Lastly, electricity and heating are necessities, with little variation across countries in the level of income elasticities. A broad carbon tax would thus likely be regressive in high-income countries, but more proportional, maybe even progressive, in low-income countries. The overall effect in low-income countries depends on the relative budget shares of transport fuel and meat (luxuries) versus electricity and heating (necessities). A narrow carbon tax on transport fuel has a less ambiguous incidence: it will be regressive in high-income countries where the good is a necessity and proportional to progressive in low-income countries where the good is a luxury.
The income elasticities of demand, however, only provide half of the picture. To understand the degree of regressivity from carbon taxation, we also need to take into account the level of income inequality in a country. Our model predicts that a carbon tax on necessities will be more regressive in countries with relatively high levels of inequality. And increases in inequality over time may turn a proportional tax incidence into a regressive one.
To test our model’s prediction, we analyze the distributional effects of the Swedish carbon tax on transport fuel and examine previous studies of gasoline tax incidence across high-income countries.
Empirical Evidence from Sweden
The Swedish carbon tax was implemented in 1991 at $30 per ton of carbon dioxide and the rate was subsequently increased rather rapidly between 2000-2004. Today, in 2021, the rate is above $130 per ton; the world’s highest carbon tax rate imposed on households. The full tax rate is mainly applied to transport fuel, with around 90 percent of the revenue today coming from gasoline and diesel consumption.
Figure 1. Carbon tax incidence and income inequality in Sweden
Using household-level data on transport fuel expenditures and annual income between 1999-2012, we find that the Swedish carbon tax is increasingly regressive over time, which is highly correlated with an increase in income inequality. Figure 1 shows the strong linear correlation between the incidence of the tax and the level of inequality across our sample period. The progressivity of the tax is measured using the Suits index (Suits, 1977), a summary measure of tax incidence that spans from +1 to -1. Positive (negative) numbers indicate that the tax is overall progressive (regressive) and a proportional tax is given an index of zero. The level of income inequality, in turn, is summarized by the Gini coefficient (0-100), with higher numbers indicating higher levels of inequality.
In 1991, when the Swedish carbon tax was implemented, income inequality was relatively low, with a Gini of 20.8. If we extrapolate, the results presented in Figure 1 indicate that the tax incidence in 1991 was proportional to slightly progressive. Since the early 1990s, however, Sweden has experienced a rise in inequality. Today, the Gini is around 28 and the carbon tax incidence is rather regressive. This can be a potential concern if people start to perceive the distribution of the tax burden as unfair and call for reductions in the tax rate.
Empirical Evidence Across High-Income Countries
Figure 2 presents the results of our analysis of previous studies of gasoline tax incidence across high-income countries. Again, we find a strong correlation with inequality; the higher the level of inequality, the more regressive are gasoline taxes. In the bottom-right corner, we locate the results from studies on gasoline tax incidence that have used US data. The level of inequality in the US has been persistently high, and the widespread assumption that gasoline and carbon taxation is regressive is thus based to a large part on studies of one highly unequal country. Looking across Europe we find that the tax incidence is more varied, with close to a proportional outcome in the (relatively equal) Nordic countries of Denmark and Sweden.
Figure 2. Gasoline tax incidence and income inequality in OECD countries
Conclusion
A carbon tax is economists’ preferred instrument to tackle climate change, but its distributional effect may undermine the political acceptability of the tax. This brief shows that to understand the likely distributional effects of carbon taxation we need to take into account the type of goods that are taxed – necessities or luxuries – and the level and direction of income inequality. Carbon taxation will be closer to proportional in European countries with low levels of inequality, whereas in countries with relatively high levels of inequality the carbon tax incidence will be regressive on necessities and progressive for luxury goods.
This insight may explain why we first saw the introduction of carbon taxes in the Nordic countries. Finland, Sweden, Denmark, and Norway all implemented carbon taxes between 1990-1992, and income inequality was relatively, and historically, low in this region at the time. Policymakers in the Nordic countries thus didn’t need to worry about possibly regressive effects. Looking across Europe today, many of the countries that have relatively low levels of inequality have either already implemented carbon taxes or, due to the size of their economies, have a low share of global emissions. In countries that are responsible for a larger share of global emissions – such as, the UK, Germany, and France – inequality is relatively high, and they may find it to be politically more difficult to implement carbon pricing as the equity argument becomes more salient and provides opportunities for opponents to attack the tax.
To increase the political acceptability and perceived fairness of carbon pricing, policymakers in Europe should consider a policy design that offsets regressive effects by returning the revenue back to households, either by lump-sum transfers or by reducing tax rates on labor income.
References
- Andersson, Julius and Giles Atkinson. 2020. “The Distributional Effects of a Carbon Tax: The Role of Income Inequality.” Grantham Research Institute on Climate Change and the Environment Working Paper 349. London School of Economics.
- Brännlund, Runar and Lars Persson. 2012. “To tax, or not to tax: preferences for climate policy attributes.” Climate Policy 12 (6): 704-721.
- Dahl, Carol A. 2012. “Measuring global gasoline and diesel price and income elasticities.” Energy Policy 41: 2-13.
- Feindt, Simon, et al. 2020. “Understanding Regressivity: Challenges and Opportunities of European Carbon Pricing.” SSRN 3703833.
- Gallet, Craig A. 2010. “The income elasticity of meat: a meta-analysis.” Australian Journal of Agricultural and Resource Economics 54(4): 477-490.
- Grainger, Corbett A and Charles D Kolstad. 2010. “Who pays a price on carbon?” Environmental and Resource Economics 46(3): 359-376.
- Hassett, Kevin A, Aparna Mathur, and Gilbert E Metcalf. 2009. “The consumer burden of a carbon tax on gasoline.” American Enterprise Institute, Working Paper.
- Sager, Lutz. 2019. “The global consumer incidence of carbon pricing: evidence from trade.” Grantham Research Institute on Climate Change and the Environment Working Paper 320. London School of Economics.
- Thomas, Sterner. 2012. Fuel taxes and the poor: the distributional effects of gasoline taxation and their implications for climate policy. Routledge.
- Suits, Daniel B. 1977. “Measurement of tax progressivity.” American Economic Review 67(4): 747-752.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Changing Prices in a Changing Climate: Electoral Competition and Fossil Fuel Taxation
When do governments increase the price of fossil fuels? Charting the theoretical territory between climate change politics and long-term policymaking. Join SITE brown bag seminar as Jared Finnegan highlights the role of electoral competition in shaping how politicians respond to the intertemporal tradeoff fossil fuel taxation represents.
About the speaker
Jared J. Finnegan is a S.V. Ciriacy-Wantrup Postdoctoral Fellow in the Department of Environmental Science, Policy, and Management at UC Berkeley. He is also a Visiting Fellow at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science (LSE). Previously, he was a Postdoctoral Fellow at the Niehaus Center for Globalization and Governance at Princeton University. He studies the comparative political economy of the high-income democracies. His research investigates how governments, voters, and business understand and address long-term societal challenges, particularly climate change.
Abstract
When do governments increase the price of fossil fuels? Charting the theoretical territory between climate change politics and long-term policymaking, this paper highlights the role of electoral competition in shaping how politicians respond to the intertemporal tradeoff fossil fuel taxation represents. The more secure the government is in office, the more insulated it is from the vagaries of political competition, and the more likely it is to impose costs on constituents today to generate a future stable climate. By influencing governments’ time preferences, competition structures the myopia of elected officials. I test the arguments using an original dataset of gasoline taxation across high-income democracies between 1988-2013. I find robust evidence that higher levels of electoral competition are associated with lower gasoline tax rates, and that the relationship is moderated by the level of costs imposed on voters, but not government partisanship. The analysis points to a crucial mechanism that plausibly accounts for the differential ability of governments to tackle a wider range of long-term policy challenges.
Registration
Please contact site@hhs.se and type the subject box with “Brown bag seminar *INSERT TITLE* at SITE” and describe in short who you are and why you want to join. Afterwards, the Zoom link will be sent to you by email with further instructions!
Read the full working paper
Changing Prices in a Changing Climate: Electoral Competition and Fossil Fuel Taxation (2018)