Location: Sweden

The Impact of Rising Gasoline Prices on Households in Sweden, Georgia, and Latvia – Is This Time Different?

Posted on December 1, 2023 | FREECE Brief, Policy Papers

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Over the last two years, the world has experienced a global energy crisis, with surging oil, coal, and natural gas prices. For European households, this translates into higher gasoline and diesel prices at the pump as well as increased electricity and heating costs. The increase in energy related costs began in 2021, as the world economy struggled with supply chain disruptions caused by the Covid-19 pandemic, and intensified as Russia launched a full-scale invasion of Ukraine in late February 2022. In response, European governments have implemented a variety of energy tax cuts (Sgaravatti et al., 2023), with a particular focus on reducing the consumer cost of transport fuel. This policy paper aims to contextualize current transport fuel prices in Europe by addressing two related questions: Are households today paying more for gasoline and diesel than in the past? And should policymakers respond by changing transport fuel tax rates? The analysis will focus on case studies from Sweden, Georgia, and Latvia, countries that vary in economic development, energy independence, reliance on Russian oil, transport infrastructure, and transport fuel tax rates. Through this study, we aim to paint a nuanced picture of the implications of rising fuel prices on household budgets and provide policy guidance.

Record High Gasoline Prices, Historically Cheap to Drive

Sweden has a long history of using excise taxes on transport fuel as a means to raise revenue for the government and to correct for environmental externalities. As early as in 1924, Sweden introduced an energy tax on gasoline. Later, in 1991, this tax was complemented by a carbon tax levied on the carbon content of transport fuels. On top of this, Sweden extended the coverage of its value-added tax (VAT) to include transport fuels in 1990. The VAT rate of 25 percent is applied to all components of the consumer price of gasoline: the production cost, producer margin, and excise taxes (energy and carbon taxes).

In May 2022, the Swedish government reduced the tax rate on transport fuels by 1.80 SEK per liter (0.16 EUR). This reduction was unprecedented. Since 1960, there have only been three instances of nominal tax rate reductions on gasoline in Sweden, each by marginal amounts in the range of 0.04 to 0.22 SEK per liter. Prior to the tax cut, the combined rate of the energy and carbon tax was 6.82 SEK per liter of gasoline. Adding the VAT that is applied on these taxes, amounting to 1.71 SEK, yields a total excise tax component of 8.53 SEK. This amount is fixed in the short run and does not vary with oil price changes.

Figure 1. Gasoline Pump Price, 2000-2023.

Source: Drivkraft Sverige (2023).

Figure 1 shows the monthly average real price of gasoline in Sweden from January 2000 to October 2023. The price has slowly increased over the last 20 years and has been historically high in the last year and a half. Going back even further, the price is higher today than at any point since 1960. Swedish households have thus lately been paying more for one liter of gasoline than ever before.

However, a narrow focus on the price at the pump does not take into consideration other factors that affect the cost of personal transportation for households.

First, the average fuel efficiency of the vehicle fleet has improved over time. New vehicles sold in Sweden today can drive 50 percent further on one liter of gasoline compared to new vehicles sold in 2000. Arguably, what consumers care about the most is not the cost of gasoline per se but the cost of driving a certain distance, as the utility one derives from a car is the distance one can travel. Accounting for vehicles’ fuel efficiency improvement over time, we find that even though it is still comparatively expensive to drive today, the current price level no longer constitutes a historical peak. In fact, the cost of driving 100 km was as high, or higher, in the 2000-2008 period (see Figure 2).

Figure 2. Gasoline Expenditure per 100 km.

Source: Trafikverket (2023) and Drivkraft Sverige (2023).

Second, any discussion of the cost of personal transportation for households should also factor in changes in household income over time. The Swedish average real hourly wage has increased by more than thirty percent between 2000-2023. As such, the cost of driving 100 km, measured as a share of household income, has steadily declined over time. Further, this pattern is consistent across the income distribution; for instance, the cost trajectory for the bottom decile is similar to that of all wage earners (as illustrated in Figure 3). In 1991, when the carbon tax was implemented, the average household had to spend around two thirds of an hour’s wage to drive 100 km. By 2020, that same household only had to spend one third of an hour’s wage to drive the same distance. There has been an increase in the cost of driving over the last two years, but in relation to income, it is still cheaper today to drive a certain distance compared to any year before 2013.

Figure 3. Cost of Driving as a Share of Income, 1991-2023.

Source: Statistics Sweden (2023).

Taken all together, we see that on the expenditure side, vehicles use fuel more efficiently over time and on the income side, households earn higher wages. Based on this, we can conclude that the cost of travelling a certain distance by car is not historically high today.

Response From Policymakers

It is, however, of little comfort for households to know that it was more expensive to drive their car – as a share of income – 10 or 20 years ago. We argue that what ultimately matters for households is the short run change in cost, and the speed of this change. If the cost rises too fast, households cannot adjust their expenditure pattern quickly enough and thus feel that the price increase is unaffordable. In fact, the change in the gasoline price at the pump has been unusually rapid over the last two years. Since the beginning of 2021, until the peak in June 2022, the (nominal) pump price rose by around 60 percent.

So, should policymakers respond to the rapid price increase by lowering gasoline taxes? The perhaps surprising answer is that lowering existing gasoline tax rates would be counter-productive in the medium and long run. Since excise taxes are fixed and do not vary with the oil price, they reduce the volatility of the pump price by cushioning fluctuations in the market price of crude oil. The total excise tax component including VAT constitutes more than half of the pump price in Sweden, a level that is similar across most European countries. This stands in stark contrast with the US, where excise taxes make up around 15 percent of the consumer price of gasoline. As a consequence, a doubling of the price of crude oil only increases the consumer price of gasoline in Sweden by around 35 percent, while it increases by about 80 percent in the US. Households across Sweden, Europe, and the US have adapted to the different levels of gasoline tax rates by purchasing vehicles with different levels of fuel efficiency. New light-duty vehicles sold in Europe are on average 45 percent more fuel-efficient compared to the same vehicle category sold in the US (IEA 2021). As such, US households do not necessarily benefit from lower gasoline taxation in terms of household expenditure on transport fuel. They are also more vulnerable to rapid increases in the price of crude oil. Having high gasoline tax rates thus reduces – rather than increases – the short run welfare impact on households. Hence, policymakers should resist the temptation to lower gasoline tax rates during the current energy crisis. With imposed tax cuts, households will, in the medium and long run, buy vehicles with higher fuel consumption and thus become more exposed to price surges in the future – again compelling policymakers to adjust tax rates, creating a downward spiral. Instead, alternative measures should be considered to alleviate the effects of the heavy price pressure on low-income households – for instance, revenue recycling of the carbon tax revenue and increased subsidies of public transport.

Conclusion

To reach environmental and climate goals, Sweden urgently needs to phase out the use of fossil fuels in the transport sector – Sweden’s largest source of carbon dioxide emissions. This is exactly what a gradual increase of the tax rate on gasoline and diesel would achieve. At the same time, it would benefit consumers by shielding them from the adverse effects of future oil price volatility.

The most common response from policymakers regarding fuel tax rates however goes in the opposite direction. In Sweden, the excise tax on gasoline and diesel was reduced by 1.80 SEK per liter in 2022 and the current government plans to further reduce the price by easing the biofuel mandate. Similar tax cuts have been implemented in a range of European countries. Therefore, the distinguishing factor in the current situation lies in the exceptional responses from policymakers, rather than in the gasoline costs that households are encountering.

Gasoline Price Swings and Their Consequences for Georgian Consumers

The energy crisis that begun in 2021 has also made its mark on Georgia, where the operational expenses of personal vehicles, encompassing not only gasoline costs but also maintenance expenses, account for more than 8 percent of the consumer price index. The rise in gasoline prices sparked public protest and certain opposition parties proposed an excise tax cut to mitigate the gasoline price surge. In Georgia, gasoline taxes include excise taxes and VAT. Until January 1, 2017, the excise tax was 250 GEL per ton (9 cents/liter), it has since increased to 500 GEL (18 cents/liter). Despite protests and the suggested excise tax reduction, the Georgian government chose not to implement any tax cuts. Instead, it initiated consultations with major oil importers to explore potential avenues for reducing the overall prices. Following this, the Georgian National Competition Agency (GNCA) launched an inquiry into the fuel market for motor vehicles, concluding a manipulation of retail prices for gasoline existed (Georgian National Competition Agency, 2023).

The objective of this part of the policy paper is to address two interconnected questions. Firstly, are Georgian households affected by gasoline price increases? And secondly, if they are, is there a need for government intervention to mitigate the negative impact on household budgets caused by the rise in gasoline prices?

The Gasoline Market in Georgia

Georgia’s heavy reliance on gasoline imports is a notable aspect of the country’s energy landscape. The country satisfies 100 percent of its gasoline needs with imports and 99 percent of the fuel imported is earmarked for the road vehicle transport sector. Although Georgia sources its gasoline from a diverse group of countries, with nearly twenty nations contributing to its annual gasoline imports, the supply predominantly originates from a select few markets: Bulgaria, Romania, and Russia. In the last decade, these markets have almost yearly accounted for over 80 percent of Georgia’s total gasoline imports. Furthermore, Russia’s share has substantially increased in recent years, amounting to almost 75 percent of all gasoline imports in 2023. The primary reason behind Russia’s increased dominance in Georgia’s gasoline imports is the competitive pricing of Russian gasoline, which between January and August in 2023 was almost 50 percent cheaper than Bulgarian gasoline and 35 percent cheaper than Romanian gasoline (National Statistics Office of Georgia, 2023). Given the dominance of Russian gasoline in Georgia, the end-user (retail) prices of gasoline in Georgia, are closer to gasoline prices in Russia than EU gasoline prices (see Figure 1).

Figure 1. End-user Gasoline Prices in Georgia, Russia and the EU, 2013-2022.

Source: International Energy Agency, 2023.

However, while the gasoline prices increased steadily in 2020-2022 in Russia, gasoline prices in Georgia increased sharply in the same period. This more closely replicated the EU price dynamics rather than the Russian one. The sharp price increase in gasoline raised concerns from the Georgian National Competition Agency (GNCA). According to the GNCA one possible reason behind the sharp increase in gasoline prices in Georgia could be anti-competitive behaviour among the five major companies within the gasoline market. Accordingly, the GNCA investigated the behaviour of major market players during the first eight months of 2022, finding violations of the Competition Law of Georgia. Although the companies had imported and were offering consumers different and significantly cheaper transport fuels compared to fuels of European origin, their retail pricing policies were identical and the differences in product costs were not properly reflected in the retail price level. GNCA claims the market players coordinated their actions, which could have led to increased gasoline prices in Georgia (National Competition Agency of Georgia. (2023).

Given that increased gasoline prices might lead to increased household expenditures for fuel, it is important to assess the potential impact of recent price developments on household’s budgets.

Exploring Gasoline Price Impacts

Using data from the Georgian Households Incomes and Expenditures Survey (National Statistics Office of Georgia, 2023), weekly household expenditures on gasoline and corresponding weekly incomes were computed. To evaluate the potential impact of rising gasoline prices on households, the ratio of household expenditures on gasoline to household income was used. The ratios were calculated for all households, grouped in three income groups (the bottom 10 percent, the top 10 percent and those in between), over the past decade (see Figure 2).

Figure 2. Expenditure on Gasoline as Share of Income for Different Income Groups in Georgia, 2013-2022.

Source: National Statistics Office of Georgia, 2023.

Figure 2 shows that between 2013 and 2022, average households allocated 9-14 percent of their weekly income to gasoline purchases. There is no discernible increase in the ratio following the energy crisis in 2021-2022.

Considering the different income groups, the upper 10 percent income group experienced a slightly greater impact from the recent rise in gasoline prices (the ratio increased), compared to the overall population. For the lower income group, which experienced a rise in the proportion of fuel costs relative to total income from 2016 to 2021, the rate declined between 2021 and 2022. Despite the decline in the ratio for the lower-level income group, it is noteworthy that the share of gasoline expenditure in the household budget has consistently been high throughout the decade, compared to the overall population and the higher-level income group.

The slightly greater impact from the rise in gasoline prices for the upper 10 percent income group is driven by a 4 percent increase in nominal disposable income, paired with an 8 percent decline in the quantity of gasoline (Figure 3) in response to the 22 percent gasoline price increase. Clearly, for this income group, the increase in disposable income was not enough to offset the increase in the price of gasoline, increasing the ratio as indicated above.

For the lower 10 percent income group, there was a 23 percent increase in nominal disposable income, paired with a 9 percent decline in the quantity of purchased gasoline (Figure 3) in response to the 22 percent gasoline price increase . Thus, for this group, the increase in disposable income weakened the potential negative impact of increased prices, eventually lowering the ratio.

Figure 3. Average Gasoline Quantities Purchased, by Household Groups, per Week (In Liters) 2013-2022.

Source: National Statistics Office of Georgia, 2023.

Conclusion

The Georgian energy market is currently fully dependent on imports, predominantly from Russia. While sharp increases in petrol prices have been observed during the last 2-3 years, they do not seem to have significantly impacted Georgian households’ demand for gasoline. Noteworthy, the lack of impact from gasoline price increases on Georgian households’ budgets, as seen in the calculated ratio (depicted in Figure 2), can be explained by the significant rise in Georgia’s imports from the cheap Russian market during the energy crisis years. Additionally, according to the Household Incomes and Expenditures survey, there was in 2022 an annual increase in disposable income for households that purchased gasoline. However, the data also show that low-income households spend a high proportion of their income on gasoline.

Although increased prices did not significantly affect Georgian households, the extremely high import dependency and the lack of import markets diversification poses a threat to Georgia’s energy security and general economic stability. Economic dependency on Russia is dangerous as Russia traditionally uses economic relations as a lever for putting political pressure on independent economies. Therefore, expanding trade and deepening economic ties with Russia should be seen as risky. Additionally, the Russian economy has, due to war and sanctions, already contracted by 2.1 percent in 2022 and further declines are expected (Commersant, 2023).

Prioritizing actions such as diversifying the import market to find relatively cheap suppliers (other than Russia), closely monitoring the domestic market to ensure that competition law is not violated and market players do not abuse their power, and embracing green, energy-efficient technologies can positively affect Georgia’s energy security and positively impact sustainable development more broadly.

Fueling Concerns: The True Cost of Transportation in Latvia

In May 2020, as the Latvian Covid-19 crisis began, Latvia’s gasoline price was 0.99 EUR per liter. By June 2022, amid the economic effects from Russia’s war on Ukraine, the price had soared to a record high 2.09 EUR per liter, sparking public and political debate on the fairness of fuel prices and potential policy actions.

While gas station prices are salient, there are several other more hidden factors that affect the real cost of transportation in Latvia. This part of the policy paper sheds light on such costs by looking at some of its key indicators. First, we consider the historical price of transport fuel in Latvia. Second, we consider the cost of fuel in relationship to average wages and the fuel type composition of the vehicle fleet in Latvia.

The Price of Fuel in Latvia

Latvia’s nominal retail prices for gasoline (green line) and diesel (orange line) largely mirror each other, though gasoline prices are slightly higher, in part due to a higher excise duty (see  Figure 1). These local fuel prices closely follow the international oil market prices, as illustrated by the grey line representing nominal Brent oil prices per barrel.

The excise duty rate has been relatively stable in the past,  demonstrating that it has not been a major factor in fuel price swings. A potential reduction to the EU required minimum excise duty level will likely have a limited effect on retail prices. Back of the envelope calculations show that lowering the diesel excise duty from the current 0.414 EUR per liter to EU’s minimum requirement of 0.33 EUR per liter could result in approximately a 5 percent drop in retail prices (currently, 1.71 EUR per liter). This at the cost of a budget income reduction of 0.6 percent, arguably a costly policy choice.

In response to recent years’ price increase, the Latvian government opted to temporarily relax environmental restrictions, making the addition of a bio component to diesel and gasoline (0.065 and 0.095 liters per 1 liter respectively) non-mandatory for fuel retailers between 1st of June 2022 until the end of 2023. The expectation was that this measure would lead to a reduction in retail prices by approximately 10 eurocents. To this date, we are unaware of any publicly available statistical analysis that verifies whether the relaxed restriction have had the anticipated effect.

Figure 1. Nominal Retail Fuel Prices and Excise Duties for Gasoline and Diesel in Latvia (in EUR/Liter), and Nominal Brent Crude Oil Prices (in EUR/Barrel), January 2005 to August 2023.

Source: The Central Statistical Bureau of Latvia, St. Louis Federal Reserve’s database, OFX Monthly Average Rates database, The Ministry of Finance of Latvia, The State Revenue Service of Latvia.

The True Cost of Transportation

Comparing fuel retail prices to average net monthly earnings gives insight about the true cost of transportation in terms of purchasing power. Figure 2 displays the nominal net monthly average wage in Latvia from January 2005 to June 2023 (grey line). During this time period the average worker saw a five-fold nominal wage increase, from 228 EUR to 1128 EUR monthly. The real growth was two-fold, i.e., the inflation adjusted June 2023 wage, in 2005 prices, was 525 EUR.

Considering fuel’s share of the wages; one liter of gasoline amounted to 0.3 percent of an average monthly wage in 2005, as compared to 0.12 percent in 2023, with diesel displaying a similar pattern. Thus, despite recent years’ fuel price increase, the two-fold increase in purchasing power during the same time period implies that current fuel prices may not be as alarming for Latvian households as they initially appeared to be.

Figure 2. Average Nominal Monthly Net Wages in Latvia and Nominal Prices of One Liter of Gasoline and Diesel as Shares of Such Wages (in EUR), January 2005 to June 2023.

Source: The Central Statistical Bureau of Latvia.

Another factor to consider is the impact of technological advancements on fuel efficiency over time. The idea is simple: due to technological improvements to combustion engines, the amount of fuel required to drive 100 kilometers has decreased over time, which translates to a lower cost for traveling additional kilometers today. An EU average indicator shows that the fuel efficiency of newly sold cars improved from 7 liters to 6 liters per 100 km, respectively, in 2005 and 2019. While we lack precise data on the average fuel efficiency of all private vehicles in Latvia, we can make an informed argument in relation to the technological advancement claim by examining proxy indicators such as the type of fuel used and the average age of vehicles.

Figure 3 shows a notable change in the fuel type composition of the vehicle fleet in Latvia. Note that the decrease in the number of cars in 2011 is mainly due to a statistical correction for unused cars. At the start of the 21st century, 92 percent of Latvian vehicles were gasoline-powered and 8 percent were diesel-powered. By 2023, these proportions had shifted to 28 percent for gasoline and 68 percent for diesel. Diesel engines are more fuel efficient, usually consuming 20-35 percent less fuel than gasoline engines when travelling the same distance. Although diesel engines are generally pricier than their gasoline counterparts, they offer a cost advantage for every kilometer driven, easing the impact of rising fuel prices. A notable drawback of diesel engines however, is their lower environmental efficiency – highlighted following the 2015 emission scandal. In part due to the scandal, the diesel vehicles growth rate have dropped over the past five years in Latvia.

Figure 3. Number of Private Vehicles by Fuel Type and the Average Age of Private Vehicles in Latvia, 2001 to 2023.

Source: The Central Statistical Bureau of Latvia, Latvia’s Road Traffic Safety Directorate.

Figure 3 also shows that Latvia’s average vehicle age increased from 14 years in 2011 to 15.1 years in 2023. This is similar to the overall EU trend, although EU cars are around 12 years old, on average. This means that, in Latvia, the average car in 2011 and 2023 were manufactured in 1997 and 2008, respectively. One would expect that engines from 2008 have better technical characteristics compared to those from 1997. Recent economic research show that prior to 2005, improvements in fuel efficiency for new cars sold in the EU was largely counterbalanced by increased engine power, enhanced consumer amenities and improved acceleration performance (Hu and Chen, 2016). I.e.,  cars became heavier, larger, and more powerful, leading to higher fuel consumption. However, after 2005, cars’ net fuel efficiency started to improve. As sold cars in Latvia are typically 10-12 year old vehicles from Western European countries, Latvia will gradually absorb a more fuel-efficient vehicle fleet.

Conclusion

The increase of purchasing power, a shift to more efficient fuel types and improvements in engine efficiency have all contributed to a reduction of the overall real cost of transportation over time in Latvia. The recent rise in fuel prices to historically high levels is thus less concerning than it initially appears. Moreover, a growing share of cars will not be directly affected by fuel price fluctuations in the future. Modern electric vehicles constitute only 0.5 percent of all cars in Latvia today, however, they so far account for 10 percent of all newly registered cars in 2023, with an upward sloping trend.

Still, politicians are often concerned about the unequal effects of fuel price fluctuations on individuals. Different car owners experience varied effects, especially when considering factors like income and location, influencing transportation supply and demand.

First, Latvia ranks as one of the EU’s least motorized countries, only ahead of Romania, with 404 cars per 1000 inhabitants in 2021. This lower rate of vehicle ownership is likely influenced by the country’s relatively low GDP per capita (73 percent of the EU average in 2022) and a high population concentration in its capital city, Riga (32 of the population lives in Riga city and 46 percent in the Riga metropolitcan area). In Riga, a developed public transport system reduces the necessity for personal vehicles. Conversely, areas with limited public transport options, such as rural and smaller urban areas, exhibit a higher demand for personal transportation as there are no substitution options and the average distance travelled is higher than in urban areas. Thus, car owners in these areas tend to be more susceptible to the impact of fuel price volatility.

Second, Latvia has a high Gini coefficient compared to other EU countries, indicating significant income inequality (note that the Gini coefficient measures income inequality within a population, with 0 representing perfect equality and 1 indicating maximum inequality. In 2022, the EU average was 29.6 while Latvia’s Gini coefficient was 34.3, the third highest in the EU). With disparities in purchasing power, price hikes tend to disproportionately burden those with lower incomes, making fuel more costly relative to their monthly wages.

These income and location factors suggest that inhabitants in rural areas are likely the most affected by recent price hikes. Distributional effects across geography (rural vs urban) are often neglected in public discourse, as the income dimension is more visible. But both geography and income factors should be accounted for in a prioritized state support, should such be deemed necessary.

References

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.

The Future of Energy Infrastructure Resilience in Europe

Posted on June 19, 2023 | Policy Brief

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In the wake of Russia’s full-scale invasion of Ukraine, large parts of Europe have experienced skyrocketing energy prices and a threat of power shortages. The need to transition to low-carbon energy systems, driven by sustainability concerns, further adds to the pressure put on the European energy infrastructure. This year’s Energy Talk, organized by Stockholm Institute of Transition Economics, invited four experts to discuss the opportunities and challenges of energy infrastructure resilience in a foreseeable future.

Introduction

Energy infrastructure has an indispensable role in facilitating the functioning of modern society, and it must – today as well as in the future – be resilient enough to withstand various challenges. One of the most important challenges – the green transition: shifting towards economically sustainable growth by decarbonizing energy systems and steering away from fossil fuels – requires energy infrastructure to absorb subsequent shocks. Another, and preeminent challenge, is that, even when directly targeted and partly destroyed as in the ongoing Russian war on Ukraine, energy infrastructure should be withstanding. Additionally, energy infrastructure is increasingly subject to supply chain disruptions, energy costs increase or network congestions. How does our energy infrastructure react to these challenges? How do they affect its ability to facilitate the needs of the green transition? Which regulations/measures should be implemented to facilitate energy infrastructure resilience?

Stockholm Institute of Transition Economics (SITE) invited four speakers to the 2023 annual Energy Talk to discuss the future of Europe’s Energy infrastructure resilience. This brief summarizes the main points from the presentations and discussions.

Energy System Resilience in the Baltics

Ewa Lazarczyk, Associate Professor at Reykjavik University, addressed the question of energy system resilience, focusing on the Baltic States and their dependence on Russia and other neighbors to fulfill their electricity needs.

The Baltic States are not self-sufficient when it comes to electricity consumption. Since 2009, Lithuania has become a net importer of electricity, relying on external sources to fulfill its electricity demand. Similarly, Estonia experienced a shift towards becoming a net importer of electricity around 2019, following the closure of environmentally detrimental oil fueled power plants.

The Baltics are integrated with the Nordic market and are heavily dependent on electricity imports from Finland and Sweden. Additionally, all three Baltic States are part of the BRELL network – a grid linking the electricity systems of Belarus, Russia, Estonia, Latvia, and Lithuania – which provides stability for their electrical networks. As a result, despite the absence of commercial electricity trading between Estonia and Russia, and limited commercial trading between Russia and the other two Baltic states, the power flows between the Baltic States and Russia and Belarus still exist. This creates a noticeable dependency of the Baltics on Russia, and a potential threat, should Russia decide to disconnect the Baltics from BRELL before the planned separation in 2024/2025.

This dependency was put on trial when Russia on May 15th 2022 cut its electricity trade with Europe. On the one hand, the system proved to be relatively resilient as the cut did not lead to any blackouts in the Baltics. On the other hand, price volatility amplified in its main import partner countries, Sweden and Finland, and congestion increased as compared to 2021.

Figure 1. Price volatility in Sweden and Finland before and after the trade cut.

Notes: Sweden is split into four price zones, SE1-SE4. Finland is split into only one price zone. Source: Lazarczyk and Le Coq, 2023.

This increased price volatility and congestion following the Russian halt in electricity trade gives an indication that the Baltics and the Nordics are vulnerable to relatively small supply cuts even at the current demand levels.

In the future, electricity consumption is however expected to increase throughout the region as a result of the electrification of the economy (e.g., by 65 percent in 2050 in the Nordic region). This highlights the need to speed up investments into energy infrastructure of internal energy markets.

In summary; recent events have demonstrated a remarkable resilience of the Baltic State’s electricity system. While the disruption of commercial flows from Russia did have some impact on the region, overall, the outcome was positive. Nonetheless, it is important to note that the region relies heavily on electricity imports, and with increasing demand for power in both the Baltics and the neighboring areas, potential issues with supply security could arise if the demand in the Nordics cannot be met through increased production. The risk of an early disconnection from the BRELL network further amplifies this concern. However, the case of Ukraine – which managed to abruptly disconnect from Russian electricity networks – serves as an example that expediting the process of establishing new connections is feasible, although not risk free.

The Ukrainian Energy Sector and the Immediate Threat from Russia

While the Baltics are facing the effects from the Russian halt in electricity trade and the threat of a potential premature disconnection from BRELL, Ukraine’s energy networks are at the same time experiencing the direct aggression from Russia.

Yuliya Markuts, Head of the Center of Public Finance and Governance at the Kyiv School of Economics (KSE), and Igor Piddubnyi, Analyst on Energy Sector Damages and Losses and Researcher at the Center for Food and Land Use Research at KSE, both gave insight into the tremendous damages to the Ukrainian energy system from Russian attacks, the short-term solutions to cope with the damage, as well as the long-term implications and reconstruction perspectives.

Since the invasion, about 50 percent of the energy infrastructure has been damaged by shelling. In addition, several power plants are under Russian control or located in Russian occupied territories. As of February 2023, nearly 16 GW of installed capacities of power plants remained in Russian control, equivalent of the peak demand. Apart from the damages to the producing side, transmission and distribution facilities have also been severely affected, as well as oil storage facilities. In April 2023, the damages to Ukraine’s energy infrastructure were estimated to amount to $8.3 billion, almost 6 percent of the total estimated direct damages from the war.

While the damages are massive, the population did not experience complete blackouts, and the Ukrainian energy system did not collapse. This is partly due to diesel-driven generators substituting much of the damaged electricity generation and partly due to a fall in demand of about 30-35 percent in 2022, mainly driven by decreased industry demand.

In the short term, Ukraine is likely to continue to face Russian attacks. Its top energy priorities would thus be to restore damaged facilities and infrastructure like heating and clean water, increase the stocks of fuel, gas, and coal, and to try to liberate occupied areas and facilities. Another vital aspect of the Ukrainian energy infrastructure and its resilience towards the Russian goal of “freezing” the country relates to energy efficiency. Ukraine’s energy efficiency has been relatively low, with the highest rate of electricity losses in Europe, and the numbers are also high for gas supply and district heating. Here, minor changes such as light bulb switching, can have great impacts. Additionally, solar panels – especially those that can also store energy – can help alleviate the acute pressure on the transmission grid. Other vital measures involve continued donations from Ukraine’s partners, sustained efforts from energy workers – at the risk of their lives – and persistent successful deterrence of cyber-attacks currently targeting the country.

Achieving a greener energy system is currently challenging (if not nearly impossible) due to the use of diesel-driven generators, the attacks on the energy system, and the fight for control over nuclear power plants such as Zaporizhzhia, which since March 2022 is under the control of Russian forces. Damages to renewable energy production further exacerbate these difficulties.

Thus, it is crucial to ensure that the planning and reconstruction of Ukraine’s energy sector is done in accordance with the European Green Deal. By 2030, the country should have at least 25 percent renewables in its energy mix, which would require substantial installations of at least 13 GW of wind, solar, small hydro and biogas capacities. In addition, transition entails decommissioning old coal power plants to run on natural or biogas instead of coal.

While this is a tall task, investments targeted to the energy system are not only essential for Ukraine’s population to sustain through the 2023/2024 winter – but also to facilitate the green transition in Europe. The potential for export of biomethane, green hydrogen, and nuclear power from Ukraine to Europe is considerable. As Europe’s biofuel demand is expected to increase by 63 percent while Ukrainian grain exports are still proving to be challenging, biofuel production for export on the European market is a particularly likely future scenario for the Ukrainian energy market.

In summary; the Ukrainian energy sector has done remarkably well, considering the impact of the damages from the Russian aggression. As Ukrainian short-term energy priorities lie in facilitating quick and efficient responses to infrastructural damages, current measures may not be particularly environmentally friendly. However, the longer-term reconstruction of Ukraine’s energy sector has great potential for being in line with the green transition objectives.

Energy System’s Resilience in the Green Transition

Mikael Toll, Senior Advisor at Ramboll Management Consulting highlighted the importance of infrastructure resilience. He emphasized the significance of the Energy Trilemma in achieving a successful transition to greener energy systems. This trilemma implies balancing between energy security, environmental sustainability, and affordability, all representing societal goals. Focusing on the energy security aspect of this trilemma, he stressed that energy infrastructure should be part of a more holistic approach to the problem. It is essential to establish resilient supply chains and implement efficient management procedures to prevent and mitigate the negative consequences of disruptions. It entails ensuring the performant infrastructure and supply, but also fostering well-functioning markets, putting in place state-governed crisis management mechanisms, and cooperation with other states. By combining these elements, one can enhance preparedness both in normal times and during crises.

Sweden as an Example

Sweden has since long been increasing its share of renewables in the energy mix, as depicted in Figure 2. This suggests that it is relatively well-prepared to the needs of the green transition. However, electricity demand is expected to increase by 100 percent in the coming years, driven by increased electrification of the industry and transport sectors, adding pressure to Sweden’s electricity system. The need for more investments in several energy systems is tangible, and investment opportunities are numerous. However, political decisions concerning the energy system in Sweden tend to be short-sighted, even though energy infrastructures have a long lifespan – often well over 50 years. As a result, investment risks are often high and change character over time, which creates a lack of infrastructure investment. Other challenges to Sweden’s energy resilience include limited acceptance of new energy infrastructure among the public, time-consuming approval processes, and a lack of thorough impact assessment.

Figure 2. Total supplied energy in Sweden, 1970-2020.

Source: Swedish Energy Agency, 2022.

Further, the current geopolitical context creates an increased need to consider external threats – such as energy system disruptions resulting from the Russian war on Ukraine – and increased dependency on China as a key supplier of metals and batteries required for electrification. It is also important to realize that external influence may affect not only physical infrastructure but also domestic decision-making processes. This calls for more energy and political security alongside the green transition, in combination with higher readiness against security threats and a reassessment of global value chains.

In summary; to successfully move into a greener future, it is necessary to invest in energy systems and infrastructure based on a careful multi-dimensional analysis and with the support of long-sighted political decisions. At the same time, we must push investments that also consider the security threats from and dependencies on global actors.

Conclusion

This year’s Energy Talk provided an opportunity to hear from leading experts on the current situation of Europe’s energy resilience. It outlined the key challenges of the green transition in the current geopolitical and economic context. Greener solutions for Europe’s energy system will require tremendous physical efforts and investments but also political will and public understanding. There are, however, immense benefits to be realized if the associated risks are not overlooked.

On behalf of the Stockholm Institute of Transition Economics, we would like to thank Ewa Lazarczyk, Yuliya Markuts, Igor Piddubnyi and Mikael Toll for participating in this year’s Energy Talk. The presentations from the webinar can be seen here.

References

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.

Media Coverage and Pandemic Behaviour: Evidence from Sweden

Posted on April 12, 2023 | Policy Brief

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Individual behaviour can often have wider societal consequences and it is important to understand how to affect positive behavioural change. In this policy brief, we document the ability of the media to increase pro-social behaviour during a public health crisis. In Garz and Zhuang (2022), we collect a unique dataset of 200,000 newspaper articles about the Covid-19 pandemic from Sweden – one of the few countries that did not impose mandatory lockdowns or curfews but largely relied on voluntary social distancing. We show that mentions of Covid-19 significantly lowered the number of visits to workplaces and retail and recreation areas, while increasing the duration of stays in residential locations. The impacts are largest when Covid-19 news stories were more locally relevant, more visible and contained simple and explicit public health advice. These results have wider implications for the design of public communications and the value of the local news media.

The Covid-19 pandemic had devastating health and economic consequences for the entire world (see, for instance, the COVID19 | FREE Network Project for more information on the pandemic experience of the FREE network countries). To stop the spread of the virus, many governments imposed curfews or lockdowns. These mandatory restrictions on people’s movements were and remain controversial. In several countries, these public health policies fuelled conspiracy theories and led to protests and refusals to adopt other protective measures, such as wearing face masks. The policies have also been criticised for placing the burden disproportionately on the poorest members of society, many of whom lost their livelihoods due to the restrictions.

Sweden is one of few countries in the world that did not to impose any lockdowns or curfews. Instead, the Swedish strategy relied on voluntary compliance with public health recommendations aimed at reducing mobility and encouraging social distancing (for FREE policy briefs featuring in-depth discussions of the Swedish pandemic response and experience, see Becker et al., 2020; Hauser, 2020a; Hauser, 2020b; Campa, Roine and Strömberg, 2021; Berlin, 2020.) This strategy was by and large effective, with Sweden seeing similar falls in average mobility in 2020 compared to its Scandinavian neighbours which however imposed strict lockdowns.

What are the drivers of voluntary compliance? A recent SITE working paper “Media Coverage and Pandemic Behaviour: Evidence from Sweden” by Marcel Garz (Jönköping University) and Maiting Zhuang (SITE, Stockholm School of Economics) sheds light on this question. We show that news coverage of the pandemic could have played an important role in shaping public opinion, social norms and ultimately individuals’ health-related actions in Sweden. In this brief, we summarise our approach and findings, and discuss important policy insights.

Data

We collect close to 200,000 newspaper articles about Covid-19 from Swedish newspapers during 2020, which represents almost all newspaper coverage of the pandemic during that year in Sweden. Newspapers remain a major source of information in Sweden, where close to two thirds of the population are regular newspaper readers. We analyse the full texts of articles to identify which aspects of news coverage have the largest impact on behaviour. Figure 1 shows Covid-19 coverage in Swedish newspapers in 2020.

Figure 1. Newspaper coverage of Covid-19

Source: Retriever and authors’ calculations. This graph shows the number of articles including “coronavirus* OR covid*” on a given day, weighted by newspaper circulation. The grey solid lines are local polynomial smooths with 95 percent confidence intervals.

As our main outcome variable, we use Google Community Mobility Report data – anonymous data on the number (or duration) of visits to different types of locations (such as retail and recreation, workplaces, or residential) within a municipality.

Figure 2. Workplace and residential mobility

Source: Google and authors’ calculations. These graphs show the daily percentage change in mobility compared to median values between January 3 to February 6, 2020. The grey solid lines are local polynomial smooths with 95 percent confidence intervals.

Method

We want to study whether reading news concerning Covid-19 affected people’s decisions to reduce their own mobility in Sweden. However, determining the effect of the media on behaviour is difficult for several reasons. First, people choose what media to consume and most often tend towards media outlets that confirm their existing views. Second, there could be factors that determine both media coverage and behaviour.

In our paper, we address the first concern by carefully choosing our data. If we found that people who read more about Covid-19 in newspapers are also more likely to reduce their mobility, this could be driven by many different individual factors, such as how worried a person is about the pandemic. Instead, we measure exposure to Covid-19 news using data on the number of subscriptions every newspaper sells in each municipality. As newspaper subscriptions are annual and were decided before the pandemic, this measure of Covid-19 news exposure should not be correlated with individuals’ beliefs about the pandemic.

The second concern is more relevant, as it is likely that media coverage and individual mobility are both driven by the spread of the pandemic. To alleviate this concern, we adopt several strategies. The first is that we take into account local pandemic severity using a range of different measures, including excess deaths, infections, Covid-19 deaths at different geographic units and with different time lags.

Our second strategy relies on the fact that Swedish newspapers typically circulate in multiple municipalities, but are more likely to respond to events in municipalities where more of their subscribers live. We use an instrumental variable (IV) approach where we use the circulation-weighted excess mortality in a newspaper’s distribution area as the IV. This IV is a strong predictor for the amount of Covid-19 coverage by that newspaper but should not affect mobility in a target municipality – conditional   on the pandemic severity in the municipality itself. We also show that our results hold in a sample of “peripheral” municipalities, that is municipalities that only form a small percentage of any newspaper’s subscriber base, but where these newspapers are nonetheless major sources of information.

Results

We find evidence that media coverage of the pandemic increases compliance with the main public health recommendation to work from home in Sweden. More newspaper articles about Covid-19 on a given day and in a given municipality is associated with increased residential mobility and lower workplace mobility (Table 1), as well as fewer visits to retail areas and recreational facilities. This pattern remains even when controlling for the severity of the pandemic at the local level. The results are robust using different methods and data.

Table 1. Effect of Covid-19 coverage on workplace and residential mobility

Source: Retriever, Google, SMHI, MPRT and authors’ calculations. Observations are at the municipality-day level. The dependent variables are percentage changes in Google mobility for workplaces (columns 1 and 3) and residential areas (columns 2 and 4) relative to the baseline. The main regressor is the circulation-weighted number of Covid-19 articles. Columns 3 and 4 show IV results using the interaction between weighted excess deaths across a newspaper’s circulation area and newspaper exposure as the IV. Local pandemic severity is the latest available excess deaths figure in the municipality at the time of newspaper publication. All regressions control for municipality and day fixed effects. Standard errors in parentheses are clustered by municipality. Significance at the 1%, 5% and 10% is denoted by ***, ** and *, respectively.

The type of coverage matters. Behaviour responds the most to personally relevant news that is easy to understand and visible. In particular, Covid-19 articles which explicitly mention the affected municipality have a larger impact on mobility than, for instance, articles that only relate to developments abroad. There are larger impacts of more factual compared to more subjective reporting. Articles that contain direct and explicit public health advice have a large impact on individual behaviour. In contrast, articles that mention medical experts have a smaller impact on individual behaviour – likely due to the complexity of the language used.

We also find a greater impact on individual behaviour in response to more visible Covid-19 stories, such as articles on the front page or articles whose headlines mention the pandemic. These results are consistent with media coverage not just increasing the salience of the pandemic and reminding individuals to follow official guidelines, but also providing relevant information. Despite fears that the large amount of press coverage could lead to individuals avoiding news about the pandemic, we find little evidence for media fatigue except at very high levels of coverage.

Conclusion

In Garz and Zhuang (2022), we study the effects of media coverage on individual behaviour during a public health crisis. We focus on Sweden, a country that did not impose any lockdowns or curfews during the Covid-19 pandemic and where newspapers remain an important source of information. Using close to the universe of all Swedish newspaper articles about Covid-19 in 2020, we find that media coverage of the pandemic encouraged people to stay at home. The effect is largest when news stories are of local relevance and contain explicit public health advice. These results have important implications for the design of future public communication strategies that aim to foster behavioural change.

We also find little evidence of media fatigue or a preference of opinion pieces relative to factual reporting when it comes to Covid-19 in Sweden. While there has been much discussion about misinformation and media bias during the pandemic, our paper shows a positive effect of the local news media in terms of encouraging voluntary adherence to public health measures.

More broadly, our study adds an important dimension to the policy discussion about the decline of local news, beyond local political accountability and community participation. We find that local news remains an important source of local information, and that personally relevant information is more important for behavioural change. A lack of trusted local media could adversely affect compliance with government recommendations during a crisis, as well as a range of other campaigns, such as those encouraging the take-up of vaccines or adoption of more environmentally friendly behaviours.

References

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.

How to Sustain Support for Ukraine and Overcome Financial and Political Challenges | SITE Development Day 2022

Posted on January 9, 2023 | Policy Brief

20230109 How to Sustain Support for Ukraine Image 01

The Russian war on Ukraine has turmoiled Europe into its first war in decades and while the effects of the war are harshly felt in Ukraine with lives lost and damages amounting, Europe and the rest of the world are also being severely affected. This policy brief shortly summarizes the presentations and discussions at the SITE Development Day Conference, held on December 6, 2022. The main focus of the conference was how to maintain and organize support for Ukraine in the short and long run, with the current situation in Belarus and the region and the ongoing energy crisis in Europe, also being addressed. 

War in Ukraine, Oppression in Belarus

Starting off the conference, Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces, delivered a powerful speech on the necessity of understanding the role of Belarus in the ongoing war in Ukraine. Tsikhanouskaya argued that Putin’s war on Ukraine was partly a result of the failed Belarusian revolution of 2020. The following oppression, torture, and mass arrestations of Belarusians is a consequence of Lukashenka’s and Putin’s fear of a free Belarus, a Belarus that is no longer in the hands of Putin – who sees not only Belarus but also Ukraine as colonies in his Russian empire. Amidst the fight for Ukraine, we must also fight for a free Belarus, Tsikhanouskaya added. Not only Belarusians fighting alongside Ukrainians against Russia in Ukraine, but also other parts of the Belarusian opposition need support from the free and democratic world and the EU. The massive crackdowns on opponents of the Belarusian regime today and the war on Ukraine are not only acts of violence, but they are also acts against democracy and freedom. The world must therefore continue to give support to those fighting in both Belarus and Ukraine. Ukraine will never be free unless Belarus is free, Tsikhanouskaya concluded.

Johan Forssell, Minister of Foreign Trade and International Development Cooperation continued Tsikhanouskaya’s words on how the Russian attack must be seen and treated as a war on democracy and the free world. Belarus, Moldova and especially Ukraine will receive further support from Sweden, Forssell continued, adding that the Swedish support to Ukraine has more than doubled since the invasion in February 2022. Support must however not be given only in economic terms and consequently Sweden fully supports Ukraine on its path to EU-membership, which will be especially emphasized during Sweden’s upcoming EU-presidency.  Support for the rule of law, democracy and freedom will continue to be essential and, in the forthcoming reconstruction of Ukraine, these aspects – alongside long term sustainable and green solutions – must be integrated, Forssell continued. Forssell also mentioned the importance of reducing the global spillover effects from the war. In particular, Forssell mentioned how the war has struck countries on the African continent, already hit with drought, especially hard with increased food prices and increased inflation, displaying the vital role Ukrainian grain exports play.

Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden, further talked about the need for rebuilding a better Ukraine, emphasizing the importance of involvement from Kiyv School of Economics (KSE) and other intellectuals and businesses in this process. Plachotnjuk also pinpointed what many others would come to repeat during the day; that resources, time and efforts devoted to supporting Ukraine must be maintained and persevered in the longer perspective.

Economic Impacts From the War and How the EU and Sweden Can Provide Support

During the first half of the conference, the Ukrainian economy and how it can be supported by the European Union was also discussed. On link from Kiyv, Tymofiy Mylovanov, President of the Kyiv School of Economics, shared the experiences of the University during wartime and presented the work KSE has undertaken so far – and how this contributes to an understanding of the damages and associated costs. Since the invasion, KSE has supported the government in three key areas; 1) Monitoring the Russian economy, 2) Analyzing what sanctions are relevant and effective, and 3) Estimating the cost of damages from the war. For the latter, KSE is collaborating with the World Bank using established methods of damage assessment including crowd sourced information on damages complemented with images taken by satellites and drones. According to Mylovanov, the damage assessment is crucial in order to counter Russia’s claims of a small conflict and to remind the international community of the high price Ukraine is paying to hold off Russia.

The economic impact from the war was further accentuated during the presentation by Yulia Markuts, Head of the Centre of Public Finance and Governance Analysis at the Kyiv School of Economics. Markuts explained how the Ukrainian national budget as of today is a “wartime budget”. Since February 2022, the budget has been reoriented with defense and security spending having increased 9 times compared to 2021, whereas only the most pressing social expenditures have been implemented. This in a situation where the Ukrainian GDP has simultaneously decreased by 30 percent. Although there has been a substantial inflow of foreign aid, in the form of grants and loans, the Ukrainian budget deficit for 2023 is estimated to 21 percent. Part of the uncertainty surrounding the Ukrainian budget stems from the fact that the inflow from the donor community is irregular, prompting the government to cover budget deficits through the National Bank which fuels inflation and undermines the exchange rate. Apart from the large budget posts concerning military spending, major infrastructural damages are putting further pressure on the Ukrainian budget in the year to come, Markuts continued. As of November 2022, the damages caused by Russia to infrastructure in Ukraine amounted to 135,9 billion US Dollars, with the largest damages having occurred in the Kiyv and Donetsk regions, as depicted in Figure 1.

Figure 1. Ukrainian regions most affected by war damages, as of November 2022.

Source: Kiyv School of Economics

The infrastructural damages constitute a large part of the estimated needed recovery support for Ukraine, together with losses to the state and businesses amounting to over one trillion US Dollars. However, such estimates do not cover the suffering the Ukrainian people have encountered from the war.

The large need for steady support was discussed by Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS), who argued the money needs to be seen as an investment rather than a cost, and that we at all times need to keep in mind what the consequences would be if the support for Ukraine were to fizzle out. Löjdquist, together with Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden, also emphasized how the reconstruction should be tailored to fit the standards within the European Union, given Ukraine’s candidacy status. Thorfinn further stressed that the reconstruction must be a collective effort from the international community, although led by Ukraine. The EU is today to a large extent providing their financial support to Ukraine through the European Investment Bank (EIB). Jean-Erik de Zagon, Head of the Representation to Ukraine at the EIB, briefly presented their efforts thus far in Ukraine, efforts that have mainly been aimed at rebuilding key infrastructure. Since the war, the EIB has deployed an emergency package of 668 million Euro and 1,59 billion for the infrastructure financing gap. While all member states need to come together to ensure continued support for Ukraine, the EIB is ready to continue playing a key role in the rebuilding of Ukraine and to provide technical assistance in the upcoming reconstruction, de Zagon said. This can be especially fruitful as the EIB already has ample knowledge on how to carry out projects in Ukraine.

During a panel discussion on how Swedish support has, can and should continuously be deployed, Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida, explained Sida’s engagement in Ukraine and the agency’s ambition to implement a solid waste management project. The project, in line with the need for a green and environmentally friendly rebuild, is today especially urgent given the massive destructions to Ukrainian buildings which has generated large amounts of construction waste. Karin Kronhöffer, Director of Strategy and Communication at Swedfund, also accentuated the need for sustainability in the rebuild. Swedfund invests within the three sectors of energy and climate, financial inclusion, and sustainable enterprises, and hash previously invested within the energy sector in Ukraine. Swedfund is also currently engaged in a pre-feasibility study in Ukraine which would allow for a national emergency response mechanism. Representing the business side, Andreas Flodström, CEO and founder of Beetroot, shared some experiences from founding and operating a tech company in Ukraine for the last 10 years. According to Flodström there will, apart from a huge need in investments in infrastructure, also be a large need for technical skills in the rebuild. Keeping this in mind, bootcamp style educations are a necessity as they provide Ukrainians with essential skills to rebuild their country.

A recurring theme in both panel discussions was how the reconstruction requires both public and private foreign investments. Early on, as the war continues, public investments will play the dominant part, but when the situation becomes more stable, initiatives to encourage private investments will be important. The potential of using public resources to facilitate private investments through credit guarantees and other risk mitigation strategies was brought up both at the European and the Swedish level, something which has also been emphasized by the new Swedish government.

Impacts From the War Outside of Ukraine – Energy Crisis and Other Consequences in the Region

The conference also covered the effects of the war outside of Ukraine, initially keying in on the consequences from the war on energy supply and prices in Europe. Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE, gave a presentation of the current situation and the short- and long-term implications. Le Coq explained that while the energy market is in fact functioning – displaying price increases in times of scarcity – the high prices might lead to some consumers being unable to pay while some energy producers are making unprecedented profits. The EU has successfully undertaken measures such as filling its gas storage to about 95 percent (goal of 80 percent), reducing electricity usage in its member countries, and by capping market revenues and introducing a windfall tax. While the EU is thus appearing to fare well in the short run, the reality is that EU has increased its coal dependency and paid eight times more in 2022 to fill its gas storage (primarily due to the imports of more costly Liquified Natural Gas, LNG). In the long run, these trends are concerning given the negative environmental externalities from coal usage and the market uncertainty when it comes to the accessibility and pricing of LNG. Uncertainties and new regulation also hinder investments signals into new low-carbon technologies, Le Coq concluded. Bringing an industrial perspective to the topic, Pär Hermerèn, Senior advisor at Jernkontoret, highlighted how the energy crisis is amplified by the increased electricity demand due to the green transition. Given the double or triple upcoming demand for electricity, Hermerèn, referred back to the investment signals, saying Sweden might run the risk of losing market shares or even seeing investment opportunities leave Sweden. This aspect was also highlighted by Lars Andersson, Senior advisor at Swedenergy, who, like Hermerèn, also saw the Swedish government’s shift towards nuclear energy solutions. Andersson stated the short-term solution, from a Swedish perspective, to be investments into wind power, urging policy makers to be clear on their intentions in the wind power market.

Other major impacts from the war relate to migration, a deteriorating Belarusian economy and security concerns in Georgia. Regarding the latter, Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia, shared the major developments in Georgia post the invasion. While the Georgian economic growth is very strong at 12 percent, it is mainly driven by the influx of Russian money following the migration of about 80 000 Russians to Georgia. This has led to a surge in living costs and an appreciation of the local currency (the Lari) of 12,6 percent which may negatively affect Georgian exports. Additionally, it may trigger tensions given the recent history between the countries and the generally negative attitudes towards Russians in Georgia. Michal Myck, Director at CenEa, Poland, also presented migration as a key challenge. While the in- and outflow of Ukrainian refugees to Poland is today balanced, the majority of those seeking refuge in Poland are women and children and typically not included in the workforce. To ensure successful integration and to avoid massive human capital losses for Ukraine, Myck argued education is key, pointing to the lower school enrollment rates among refugee children living closer to the Ukrainian border. Apart from the challenges posed by the large influx of Ukrainian in the last year, the Polish economy is also hit by high energy prices, fuel shortages and increasing inflation. Lev Lvovskiy, Research fellow at BEROC, Belarus, painted a similar but grimmer picture of the current economic situation in Belarus. Following the invasion, all trade with Ukraine has been cut off, while trade with Russia has increased. Belarus is facing sanctions not only following the war, but also from 2020, and the country is in recession with GDP levels dropping every month since the invasion. Given the political and economic situation, the IT sector has shrunk, companies oriented towards the EU has left the country and real salaries have decreased by 5 percent. At the same time, the policy response is to introduce price controls and press banknotes.

Consequences of War: An Academic Perspective

The later part of the afternoon was kicked off by a brief overview of the FREE Network’s research initiatives on the links between war and certain development indicators. Pamela Campa, Associate Professor at SITE, presented current knowledge on the connection between war and gender, with a focus on gender-based violence. Sexual violence is highly prevalent in armed conflict and has been reported from both sides in the Donetsk and Luhansk regions since 2014 and during the ongoing war, with nearly only Russian soldiers as perpetrators. Apart from the direct threats of sexual violence during ongoing conflict and fleeing women and children risking falling victims to trafficking, intimate partner violence (IPV) has been found to increase post conflict, following increased levels of trauma and post-traumatic stress disorder (PTSD). While Ukrainian policy reforms have so far strengthened the response to domestic violence there is still a need for more effective criminalization of domestic violence, as the current limit for prosecution is 6 months from the date crime is committed. An effective transitional justice system and expertise on how to support victims of sexual violence in conflict, alongside economic safety measures undertaken to support women and children fleeing, are key policy concepts Campa argued. Coming back to the broader topic of gender and war, Campa highlighted the need for involvement of women in peace talks and negotiations, something research suggests matter for both equality, representativeness, and efficiency.

Providing insights into the relationship between the environment and war, Julius Andersson, Assistant Professor at SITE, initially summarized how climate change may cause conflict along four channels: political instability and crime rates increasing as a consequence of higher temperatures, scarcity of natural resources and environmental migration. Conflict might however also cause environmental degradation in the form of loss of biodiversity, pollution and making land uninhabitable. As for the negative impact from the war in Ukraine, Andersson highlighted how fires from the war has caused deforestation affecting the ecosystems, that rivers in conflict struck areas in Ukraine and the Sea of Azov are being polluted from wrecked industries (including the Azovstal steelworks) and lastly that there is a real threat of radiation given the four major nuclear plants in Ukraine being targeted by Russian forces. Coming back to a topic mentioned earlier during the day, Andersson also emphasized potential conflict spillovers into other parts of the world due to the war’s impact on food and fertilizer prices.

Concluding the session, Jonathan Lehne, Assistant Professor at SITE, reviewed how war and democracy is tied to one another, highlighting that while studies have found that democracies per se are not necessarily less conflict prone, it is still the case that democratic countries almost never fight each other. As for the microlevel takeaways from previous research, it appears as if individuals and communities having experienced violence and casualties actually reap a democratic dividend in some respects, such as greater voting participation. On the other hand, while areas with a large refugee influx also experience an increased voter turnout, voting for right-wing parties also increase with politicians exploiting this in their communication.

Book Launch – Reconstruction of Ukraine: Principles and Policies

The Development Day was also guested by Ilona Sologoub, Scientific Editor at VoxUkraine, Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign, and Torbjörn Becker, Director of SITE, who presented their newly released book “Reconstruction of Ukraine: Principles and policies”. Sologoub started off by giving an overview of the mainly economic topics covered in the book and pointing out that the main purpose of the book is to inform policy makers about the present situation and to suggest needed reforms and investments. Becker outlined the four key principles recommended to stem corruption during reconstruction; 1) Remove opportunities for corruption and rent extraction, 2) Focus on transparency and monitoring of the whole reconstruction effort, 3) Make information and education an integral part of the anti-corruption effort, and 4) Set up legal institutions that are trusted when corruption does occur. Deryugina focused on the energy sector and related back to what had previously been discussed throughout the day, the need to “build-back-better”. Deryugina mentioned that Ukraine, previously heavily reliant on coal and gas imports from Russia, now have the opportunity to steer away from low energy efficiency and bottleneck issues, towards becoming a European natural gas hub. The book is available for free here. There will also be a book launch on the 11th of January 2023 at Handelshögskolan.

Concluding Remarks

Via link from Kiyv, Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics closed the conference by emphasizing the urgency of continued education of Ukrainians in Ukraine and elsewhere to avoid loss of Ukrainian human capital. Shapoval also stressed how universities can act as thinktanks, support policy makers in Ukraine and Europe to come up with effective sanctions against Russia and provide a deeper understanding of the current situation – a situation which will linger and in which Ukraine needs continued full support.

This year’s SITE Development Day conference gave an opportunity to discuss the need for continued support for Ukraine and the implications from the war in a global, European, and Swedish perspective. Representatives from the political, public, private and academic sectors contributed with their insights into the challenges and possibilities at hand, providing greater understanding of how the support can be sustained, with the goal of a soon end to the war and a successful rebuild of Ukraine.

List of Participants in Order of Appearance

  • Anders Olofsgård, Deputy Director at SITE
  • Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces
  • Johan Forssell, Minister of Foreign Trade and International Development Cooperation
  • Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden
  • Tymofiy Mylovanov, President of the Kyiv School of Economics (on link from Kyiv)
  • Yuliya Markuts, Head of the Centre of Public Finance and Governance Analysis, Kyiv School of Economics
  • Jean-Erik de Zagon, Head of the Representation to Ukraine at the European Investment Bank
  • Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden
  • Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS)
  • Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida
  • Karin Kronhöffer, Director of Strategy and Communication at Swedfund
  • Andreas Flodström, CEO and founder of Beetroot
  • Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE
  • Lars Andersson, Senior advisor at Swedenergy
  • Pär Hermerèn, Senior advisor at Jernkontoret
  • Ilona Sologoub, VoxUkraine scientific editor (on link)
  • Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign (on link)
  • Torbjörn Becker, Director at SITE
  • Michal Myck, Director at CenEa, Poland
  • Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia
  • Lev Lvovskiy, Research fellow at BEROC, Belarus
  • Pamela Campa, Associate Professor at SITE
  • Julius Andersson, Assistant Professor at SITE
  • Jonathan Lehne, Assistant Professor at SITE
  • Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics (on link)

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.

Who Benefitted from the Gasoline Tax Cut in Sweden?

Posted on September 2, 2022 | Policy Brief

20220902 Who Benefitted from the Gasoline Tax Image 01

Against the background of fast rising gasoline and diesel prices in 2022, a number of European countries have reduced fuel tax rates, often in the form of temporary “gas tax holidays”. Sweden reduced its fuel tax rate by 1.81 SEK (€0.17) per litre on May 1st 2022, of which 1.31 SEK is a temporary reduction set to expire at the end of September. When the tax holiday was announced, Finance Minister Mikael Damberg commented “I am pragmatic, for me it is important that we can compensate households” (Davidsson and Nilsson, 2022). However, just one month after implementation, the pump price for gasoline rose to a new high, which gives rise to the question of how much of the tax cut has actually been passed through to the consumers. In this policy brief, we analyse the tax incidence by comparing the gasoline price development in Sweden to that in Denmark, where the fuel tax rate remained unchanged. We find that the tax reduction was fully reflected in consumer prices, with a pass-through rate of around 100 percent. Nevertheless, we argue that spill-over effects pushing up gasoline prices outside of Sweden are likely biasing our estimate. Based on economic theory, we conclude that our estimate of the pass-through rate needs to be corrected downwards, meaning that only a part of the tax cut benefit was passed along to Swedish consumers.

Introduction to Tax Incidence

In standard economic theory, the pass-through rate to consumers from a change in gasoline tax rates is determined by the equation:

20220902 Equation

where p is the tax inclusive price, t is the tax, and η and ε are the price elasticities of supply and demand, respectively. The price elasticities give us the percentage change in quantity when the price changes by one percent. It follows from this equation that the relatively inelastic side of the market bears most of the tax burden from a tax increase – or most of the benefit from a tax reduction. Under normal circumstances, short-run demand for gasoline is highly inelastic in Sweden, with ε close to zero (Gren and Tirkaso, 2020; Dahl, 2012). In contrast, short-run supply is considered relatively elastic due to the competitive nature of the industry. Thus, changes in gasoline tax rates in Sweden are usually passed through fully to the consumers (Andersson, 2019). This implies that consumers bear the entire burden in the case of a tax increase but reap all the benefits in the case of a tax reduction.

Using Denmark as a Counterfactual

The problem is that existing price elasticity estimates – computed using historical price data – do not capture the temporary supply restrictions in the context of the war in Ukraine or the supply and demand shocks from the Covid-19 pandemic. In the lack of reliable estimates of current price elasticities, we revert to analysing the tax incidence using a quasi-experimental and empirical approach. This requires a counterfactual – a comparison unit that captures the evolution of gasoline prices in Sweden had the tax cut never been implemented. Denmark is well suited for this purpose given that it is geographically close, socio-economically comparable, and has similar levels of gasoline tax rates as Sweden. More importantly, Denmark has not made any recent fuel tax rates changes.

Figure 1. Gasoline pump price in 2022

Figure 1. Gasoline pump price in 2022

Source: Gasoline prices in Sweden and Denmark are provided by CirkleK (2022). Daily exchange rates are provided by Riksbanken (2022).

Figure 1 shows that the gasoline price in Sweden and Denmark track each other closely, displaying parallel trends in the time period leading up to the announcement of the tax cut on March 14. This reassures us that Denmark is a credible comparison unit for Sweden. Gasoline prices start diverging in the interim period of around 7 weeks between the announcement and the implementation of the policy. The fact that the gasoline price in Sweden is slightly higher during this period than in Denmark provides some speculative evidence that suppliers in Sweden intentionally raised prices in anticipation of the tax cut, allowing them to capture parts of the benefit. As soon as the tax cut enters into effect, the gasoline price is notably lower in Sweden compared to Denmark, although prices continue to rise until June.

Figure 2. Gap plot of price difference

Figure 2. Gap plot of price difference

Note: The figure plots the difference between the Swedish and Danish gasoline prices from Figure 1.

It can be observed graphically from the gap plot in Figure 2 that most of the tax cut of 1.81 SEK was immediately passed through to Swedish consumers on May 1. Furthermore, there are no obvious signs of the effect wearing off over time; the pass-through rate remains fairly constant over the three months following the tax cut.

In order to obtain estimates of the pass-through rate, we run a simple difference-in-differences regression – comparing the average difference in gasoline price between Sweden and Denmark both before and after the tax cut. The price reduction after the introduction of the tax holiday is estimated at -1.89 SEK per litre compared to the price level before the introduction. This estimate is statistically significant and indicates a pass-through rate slightly above 100 percent. But since the price development in the interim period raises concerns about strategic price setting, it appears more appropriate to use the price level before the announcement as a baseline. By doing that, we find a relative reduction in the Swedish gasoline price of -1.82 SEK per litre, matching the size of the tax cut almost exactly, with a pass-through rate of 101 percent.

The Estimated Pass-through Rate Is Biased

Our finding is in line with recent work on the German counterpart – known as the “Tankrabatt“. On June 1st 2022, the German Government lowered taxes on fuels for a duration of three months, amounting to a total tax relief of around 35 cent for gasoline and 17 cent for diesel, respectively. A number of studies find a full or close to full pass-through rate from the Tankrabatt, with estimates ranging between 85 and 102 percent (Fuest et al., 2022; Dovern et al., 2022; Montag and Schnitzer, 2022). Analogous to our approach, these studies rely on a comparison with a counterfactual unit, either France or a weighted average of Germany’s neighbouring countries.

Yet, by focusing on the pass-through rate at the national level only, we risk not capturing the full tax incidence. The supply of gasoline is more inelastic at the EU level than at the national level. As Sweden cuts the tax on gasoline, the after-tax price falls and this leads to an increase in demand; supply adjusts as more gasoline comes in from neighbouring countries. At the aggregate level however, supply is more constrained, so the tax cut in Sweden results in a marginal increase in gasoline prices across countries in the EU. This marginal increase in prices amplifies as more countries implement their own tax cuts. Indeed, Sweden and Germany are not the only countries to have implemented tax cuts in response to increasing oil prices, but are part of a larger group of countries to have done so, including Belgium, Italy and Poland (Sgaravatti, Tagliapietra, and Zachmann, 2022).

The spill-over effect from the tax cuts onto gasoline prices in “untreated” countries has two important implications for our analysis. First, our estimated pass-through rate to consumers in Sweden is biased upwards. The gasoline price development in Denmark can only act as a credible counterfactual for that in Sweden in the absence of the tax cut provided that it is not affected by the tax cut itself. But this condition is not fulfilled as the tax cuts employed in Sweden and elsewhere can be suspected to have led the gasoline price in Denmark to increase more than it would have otherwise. Estimates of pass-through rates near 100 percent thus appear overstated and consumers likely benefit less from the tax relief in reality. Second, the benefit to consumers in countries that implement gasoline tax cuts comes at the expense of consumers in countries without such measures in place. An analysis of tax incidence at the national level may find that most of the benefit from the tax cut is captured by consumers, whereas an analysis at the EU level as a whole would instead find that a much larger share of the benefit is actually captured by the supply side – in and outside of Sweden. This demonstrates that the national incidence of the tax cut is different from an international one.

The Swedish Tax Cut Benefits Producers and Richer Households

The prevalence of spill-over effects makes it difficult to conduct causal inference analysis and estimate the true effect of transport fuel tax cuts empirically. Still, the previously outlined theoretical framework on tax incidence can help provide valuable insights. As discussed, gasoline demand is much more inelastic than supply in normal times, so we could expect the tax cut to be passed through to consumers at fairly high rates. However, gasoline supply today is likely more inelastic than usual in light of the repercussions from the economic fallout of the Covid-19 pandemic and the Russian invasion of Ukraine: with oil companies unable to ramp up production in the short term because of underinvestment into existing and new fields during the pandemic (Ashraf et al., 2022). In Europe, Russia accounts for more than 20 percent of the oil supply but production in Russia has gone down since the launch of the war in Ukraine. Many European companies had started to engage in self-sanctioning by cutting ties with the Russian energy sector even before the European Council agreed to embargo most oil imports from Russia by the end of the year 2022 (Adolfsen et al., 2022). Furthermore, the refining industry is facing capacity constraints due to shutdowns that took place in the course of the Covid-19 pandemic as well as high prices for gas powering its operations. All of these factors together illustrate why gasoline supply at the EU level has become more inelastic in the past weeks and months. As a consequence, the relative elasticity of gasoline supply and demand is distorted towards benefitting the producers more than usual. Hence, we can infer from economic theory that not all of the benefit from the gasoline tax cut went to Swedish consumers, but that producers in Sweden and abroad captured some of it.

Apart from this, the tax cut does not benefit all households equally. Among the 20 percent of households with the lowest disposable income in Sweden, only about half have a direct expenditure on transport fuel. But among the 20 percent of richest households, around 95 percent have positive transport fuel expenditures (Statistics Sweden, 2020). A cut in transport fuel tax rates therefore disproportionately benefits high-income households in Sweden.

Finally, it is important to keep in mind that the transport fuel tax cuts employed in various countries do not come without a price tag – they represent a cost to the state budget and ultimately its citizens in the form of foregone tax revenues. In the case of Sweden, this amounts to 6.2 billion SEK in 2022, or around $60 per person (Swedish Government, 2022; Ministry of Finance, 2022). A broader evaluation of the welfare effect of the tax cut needs to take into consideration what the tax revenue would have been spent on had the tax cut not been implemented.

Conclusion

In mid-August, a report published by Konjunkturinstitutet (National Institute of Economic Research) stirred up the public debate on the gasoline tax holiday in Sweden. According to their report, considering what they call a notification and a pick-up effect (Konjunkturinstitutet, 2022), only 62 percent of the tax reduction on gasoline was passed on to Swedish consumers. The authors claim that sellers of gasoline exploited their market power through charging higher prices in the weeks leading up to the introduction of the tax reduction – the notification effect – and again shortly after the introduction – the pick-up effect. In this policy brief, we obtain a considerably higher estimate of the pass through rate of around 100 percent. In addition, we only find evidence for a weak notification effect and do not share the view that a pick-up effect has taken place.  Even though our studies have in common that we consider Denmark as a counterfactual, we see several advantages in our empirical methodology that may explain the different results: The data we use for both Sweden and Denmark come from the same gasoline company, which improves the comparability of prices. The time period we study after the tax cut covers three months instead of only one, and our finding is robust to the inclusion of a time trend, whereas the main results in the report by Konjunkturinstitutet (2022) rely heavily on the addition of such variable in their model.

What we would like to emphasise in the present case is that any methodology based on counterfactuals is prone to bias. If you shift the level of analysis from a single country in isolation to the whole of the European Union, it becomes clear that the Swedish gasoline tax cut brings about a marginal increase in gasoline prices outside of Sweden. This is why our estimates are likely biased upwards, revealing a flaw in both this study and the report by Konjunkturinstitutet (2022). In order to pin down the true pass-through rate to a precise number, a more comprehensive analysis is needed, although this may prove difficult. Without reliable empirical results, we should trust economic theory until now. The conclusions we can already draw are the following:

  • Firstly, some of the benefits from the tax reduction is passed through to Swedish consumers but a full pass-through is an overstatement. It is important to note that even if gasoline companies only capture a small percentage of the benefit, this can still amount to large profits in absolute terms.
  • Secondly, the gain from the tax reduction in Sweden produces losses for consumers in countries that have not lowered their tax rates.
  • Thirdly, the policy favours high-income groups as the gains are not distributed equally among consumers within Sweden.
  • Lastly, the corresponding loss in government revenue could potentially reduce welfare where expenditure is cut.

At the bottom line, the above economic reasoning suggests that the pass-through of the gasoline tax reduction to Swedish consumers is limited. And while we arrive at a similar conclusion as the report by Konjunkturinstitutet (2022), we follow a different line of argument. In our view, the reason for the imperfect pass-through to consumers does not necessarily lie exclusively in strategic price setting on the part of gasoline companies, but in the dynamics of the global market.

References

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.

Understanding the Economic and Social Context of Gender-based and Domestic Violence in Central and Eastern Europe – Preliminary Survey Evidence

Posted on May 11, 2022 | FROGEE Brief, Policy Brief

20220511 Economic and social context of domestic violence Image 02

This brief presents preliminary findings from a cross-country survey on perceptions and prevalence of domestic and gender-based violence conducted in September 2021 in eight countries: Armenia, Belarus, Georgia, Latvia, Poland, Russia, Sweden and Ukraine. We discuss the design and content of the study and present initial information on selected topics that were covered in the survey. The collected data has been used in three studies presented at the FROGEE Conference on “Economic and Social Context of Domestic Violence” and offers a unique resource to study gender-based violence in the region.

While the COVID-19 pandemic has amplified the academic and policy interest in the causes and consequences of domestic violence, the Russian invasion of Ukraine has tragically reminded us about the gender dimension of war. There is no doubt that a gender lens is a necessary perspective to understand and appreciate the full consequences of these two ongoing crises.

The tragic reason behind the increased attention given to domestic violence during the COVID-19 lockdowns is the substantial evidence that gender-based violence has intensified to such an extent that the United Nations raised the alarm about a “shadow pandemic” of violence against women and girls (UN Women on-line link). Already before the pandemic, one in three women worldwide had experienced physical or sexual violence, usually at the hands of an intimate partner, and this number has only been increasing. The tragic reports from the military invasion of Ukraine concerning violence against women and children, as well as information on the heightened risks faced by war refugees from Ukraine, most of whom are women, should only intensify our efforts to better understand the background behind these processes and study the potential policy solutions to limit them to a minimum in the current and future crises.

The most direct consequences of gender-based and domestic violence – to the physical and mental health of the victims – are clearly of the highest concern and are the leading arguments in favour of interventions aimed at limiting the scale of violence. One should remember though, that the consequences and the related social costs of gender-based and domestic violence are far broader, and need not be caused by direct acts of physical violence. Gender-based and domestic violence can take the form of psychological pressure, limits on individual freedoms, or access to financial resources within households. As research in recent decades demonstrates, such forms of abuse also have significant consequences for the psychological well-being, social status, and professional development of its victims. All these outcomes are associated with not only high individual costs, but also with substantial social and economic costs to our societies.

This policy brief presents an outline of a survey conducted in eight countries aimed at better understanding the socio-economic context of gender-based violence. The survey, developed by the FREE Network of independent research institutes, has a regional focus on Central and Eastern Europe, with Sweden being an interesting benchmark country. The data was collected in September 2021 in Armenia, Belarus, Georgia, Latvia, Poland, Russia, Sweden and Ukraine. The socio-economic situation of all these countries irrevocably changed with the Russian invasion of Ukraine on 24 February 2022, the ongoing war, and its dramatic consequences. The world’s attention focused on the unspeakable violence committed by the Russian forces in Ukraine, the persecution in Belarus and Russia of their own citizens who were protesting against the invasion, and the challenges other neighbouring countries have faced as a result of an unprecedented wave of Ukrainian refugees. This change, on the one hand, calls for a certain distance with which we should judge the survey data and the derived results. On the other hand, the data may serve as a unique resource to support the analysis of the pre-war conditions in these countries with the aim to understand the background driving forces behind this dramatic crisis. In as much as the gender lens is necessary to comprehend the full scale of the consequences of both the COVID-19 pandemic and the war in Ukraine, it will be equally indispensable in the process of post-war development and reconciliation once peace is again restored.

Survey Design, Countries, and Samples

The survey was conducted in eight countries in September 2021 through as a telephone (CATI) survey using the list assisted random digit dialling (LA-RDD) method covering both cell phones and land-lines, and the sampling was carried out in such a way as to make the final sample representative of the respective populations by gender and three age group (18-39; 40-54; 55+). The collected samples varied from 925 to 1000 individuals. The same questionnaire initially prepared as a generic English version was fielded in all eight countries (in the respective national languages). The only deviations from the generic version were related to the education categories and to a set of final questions implemented in Latvia, Russia and Ukraine with a focus on the evaluation of national IPV legislation.

Table 1 presents some basic sample statistics, while Figure 1 shows the unweighted age and gender compositions in each country. The proportion of women in the sample varies between 49.4% in Sweden and 55.0% in Belarus, Russia and Ukraine. The average sample age is between 43 (Armenia) and 51 (Sweden), while the proportion of individuals with higher education is between 29.3% in Belarus and 55.4% in Georgia. The highest proportion of respondents living in rural areas could be found in Armenia at 62.9%, while the lowest was in Georgia at 24.1%. Figure 1 illustrates good coverage across age groups for both men and women.

Table 1. FROGEE Survey: samples and basic demographics

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Figure 1. FROGEE Survey: gender and age distributions

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Socio-economic Conditions and Other Background Characteristics

To be able to examine the relationship between different aspects of domestic and gender-based violence to the socio-economic characteristics of the respondents, an extensive set of questions concerning the demographic composition of their household and their material conditions were asked at the beginning of the interview. These questions included information about partnership history and family structure, the size of the household and living conditions, education and labour market status (of the respondent and his/her partner) and general questions concerning material wellbeing. In Figure 2 we show a summary of two of the latter set of questions – the proportion of men and women who find it difficult or very difficult to make ends meet (Figure 2A) and the proportion who declared that the financial situation of their household deteriorated in the last two years, i.e. since September 2019, which can be used as an indicator of the material consequences of the COVID-19 pandemic. We can see that the difficulties in making ends meet are by far lowest in Sweden, and slightly lower in the other EU countries (Latvia and Poland). The differences are less pronounced with regard to the implication of the pandemic, but also in this case respondents in Sweden seem to have been least affected.

 Figure 2. Making ends meet and the consequences of COVID-19

a. Difficulties in making ends meet


b. Material conditions deteriorated since 2019

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Perceptions and Incidence of Domestic and Gender-Based Violence and Abuse

Frequency of differential treatment and abuse

The set of questions concerning domestic and gender-based violence started with an initial module related to the different treatment of men and women, with respondents asked to identify how often they witnessed certain behaviours aimed toward women. The questions covered aspects such as women being treated “with less courtesy than men”, being “called names or insulted for being a woman” and women being “the target of jokes of sexual nature” or receiving “unwanted sexual advances from a man she doesn’t know”, and the respondents were to evaluate if in the last year they have witnessed such behaviours on a scale from never, through rarely, sometimes, often, to very often. We present the proportion of respondents answering “often” or “very often” to two of these questions in Figure 3A (“People have acted as if they think women are not smart”) and 3B (“A woman has been the target of jokes of a sexual nature”). We find significant variation across these two dimensions of differential treatment, and we generally find that women are more sensitive to perceiving such treatment. It is interesting to note that the proportion of women who declared witnessing differential treatment in Sweden is very high in comparison to for example Latvia or Belarus, which, as we shall see below, does not correspond to the proportion of women (and men) witnessing more violent types of behaviour against women.

Figure 3. Frequency of differential treatment (often or very often)

a. People have acted as if they think women are not smart


b. A woman has been the target of jokes of a sexual nature

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Questions on the frequency of witnessing physical abuse were also asked in relation to the scale of witnessed behaviour. Here respondents were once again asked to say how often “in their day-to-day life” they have witnessed specific behaviours. These included such types of abuse as: a woman being “threatened by a man”, “slapped, hit or punched by a man”, or “sexually abused or assaulted by a man”. The proportion of respondents who say that they have witnessed such behaviour with respect to two of the questions from this section are presented in Figure 4. In Figure 4A we show the proportion of men and women who have witnessed a woman being “slapped, hit or punched” (sometimes, often or very often), while in Figure 4B being “touched inappropriately without her consent”. Relative to the perceptions of differential treatment the incidence of a woman being hit or punched (4A) declared by the respondents seems more intuitive when considered against the overall international statistics of gender equality. The proportions are lowest in Sweden and Poland, and highest in Armenia and Ukraine. However, the perception of inappropriate touching by men with respect to women (Figure 4B) shows a similar extent of such actions across all analysed countries.

Figure 4. Frequency of abuse (sometimes, often or very often)

a. A woman has been slapped, hit or punched by a man


b. A woman has been touched inappropriately, without her consent, by a man

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Perceptions of abuse

The questions concerning the scale of witnessed behaviours were complemented by a module related to the evaluation of certain behaviours from the perspective of their classification as abuse and the degree to which certain types of gender-specific behaviours are acceptable. Thus, for example respondents were asked if they consider “beating (one’s partner) causing severe physical harm” to be an example of abuse within a couple (Figure 5A) or if “prohibition to dress as one likes” represents abuse (Figure 5B). This module included an extensive list of behaviours, such as “forced abortion”, “constant humiliation, criticism”, “restriction of access to financial resources”, etc. As we can see in Figure 6, with respect to the clearest types of abuse – such as physical violence – respondents in all countries were pretty much unanimous in declaring such behaviour to represent abuse. With respect to other behaviours the variation in their evaluation across countries is much greater – for example, while nearly all men and women in Sweden consider prohibiting a partner to dress as he/she likes to be abusive (Figure 5B), only about 57% of women and 36% of men in Armenia share this view.

The questionnaire also included questions specifically focused on the perception of intimate partner violence. These asked respondents if they knew about women who in the last three months were “beaten, slapped or threatened physically by their intimate partner”, and the evaluation of how often intimate partners act physically violent towards their wives.

Figure 5. Perceptions of abuse: are these examples of abuse within a couple?

a. Beating causing severe physical harm


b. Prohibition to dress as one likes

Source: FROGEE Survey on Domestic and Gender-Based Violence.

A further evaluation of attitudes towards violent behaviour was done with respect to the relationship between a husband and wife and his right to hit or beat the wife in reaction to certain behaviours. In Figure 6 we show the distribution of responses regarding the justification for beating one’s wife in reaction to her neglect of the children (6A) or burning food (6B). The questions also covered such behaviour as arguing with her husband, going out without telling him, or refusing to have sex. As we can see in Figure 6, once again we find substantial country variation in the proportion of the samples – both men and women – who justify such violent behaviour within couples. This was particularly the case when respondents were asked about justification of violent behaviour in the case of a woman neglecting the children. In Armenia as many as 30% of men and 22% of women agree that physical beating is justified in those cases. These proportions are manyfold greater than what can be observed in countries such as Latvia, where 3% of men and women agreed that abuse was justifiable under these circumstances, or Sweden, where only 1% of men and women agreed.

Figure 6. Perceptions of abuse: is a husband justified in hitting or beating his wife

a. If she neglects the children


b. If she burns the food

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Seeking help and the legal framework

The final part of the questionnaire focused on the evaluation of different reactions to incidents of domestic and gender-based violence. Respondents were first asked if a woman should seek help from various people and institutions if she is beaten by her partner – respondents were asked if she should seek help from the police, relatives or friends, a psychologist, a legal service or if, in such situations, she does not need help. In Figure 7 we show the proportion of people who agreed with the last statement, i.e. claimed that it is only the couple’s business. The proportions of respondents who declare such an attitude is higher among men than women within each country, and is highest among men in Armenia (48%) and Georgia (25%). Again, these proportions are in stark contrast to men in Sweden, or even Poland, where only 4% and 8% of men agreed, respectively. Nevertheless, looking at the total survey sample, a vast majority believe that a woman who is a victim of domestic violence should seek help outside of her home, indicating that at least some forms of institutionalised support for women are popular measures with most people.

Figure 7. Proportions agreeing that domestic violence is only the couple’s business

Source: FROGEE Survey on Domestic and Gender-Based Violence.

The interview also included questions on the need for specific legislation aimed at punishing intimate partner violence and on the existence of such legislation in the respondents’ countries. The latter questions were extended in three countries – Latvia, Russia and Ukraine – to evaluate the specific sets of regulations implemented recently in these countries and to facilitate an analysis of the role IPV legislation can play in reducing violence within households. Legislation on domestic violence is relatively recent. During the last four decades, though, changes accelerated in this respect around the world. Legislative measures have been introduced in many countries, covering different aspects of preventing, protecting against and prosecuting various forms of violence and abuse that might happen within the marriage or the family. Research strives to offer evaluations on what legal provisions are most effective, in a setting in which statistics and information are still far from perfect, and as a consequence of the dearth of strong evidence the public debate on the matter is often lively. For legislation to have an effect on behaviour through shaping the cost of committing a crime, on the one hand, and the benefit of reporting it or seeking help, on the other, or more indirectly through changing norms in society, information and awareness are key. For how can deterrence be achieved if people do not know what the sanctions are? And how can reporting be encouraged if victims do not know their rights? The evidence on legislation awareness is unfortunately quite scarce. A survey of the criminology field (Nagin, 2013) concludes that this is a major knowledge gap.

Figure 8 shows the proportions of answers to questions concerning the need for and existence of legislation specifically targeted towards intimate partner violence. We can see that while support for such legislation is quite high (Figure 8A), it is generally lower among men (in particular in Armenia, Russia and Belarus). Awareness of existence of such laws, on the other hand, is much lower, and it is particularly low among women. It should be pointed out that all countries have in fact implemented provisions against domestic violence in their criminal code, but only around half of the population, sometimes much fewer, are aware of that.

Figure 8. Need for and awareness of IPV legislation

a. State should have specific legislation aimed at punishing IPV


b. Country has specific legislation aimed at punishing intimate partner violence

Source: FROGEE Survey on Domestic and Gender-Based Violence.

Recent reforms of DV legislation that were implemented in Russia in 2017, in Ukraine in 2019 and in Latvia just a few months ago (at the time of the survey, the changes were at the stage of a proposal) were the subject of the final survey questions in these countries. We find that awareness of these recent reforms is very low in all three countries, and knowledge about the reform content (gauged with the help of a multiple-choice question with three alternative statements) is even lower. Our analysis suggests that gender and family situation are the two factors that most robustly predict support for legislation, while education and age are associated with awareness and knowledge of the reforms. Minority Russian speakers are less aware of the reforms in both Ukraine and Latvia, in Ukraine are also less likely to answer correctly about the content of the reform, and in Latvia are less supportive of DV legislation in general.

Analyses of this type are useful for policy design, to better understand which groups lack relevant knowledge and should be targeted by, for example, information campaigns to combat DV, such as those many governments around the world implemented during the covid-19 pandemic.

Future Work Based on the Survey

The above is just a small sample of the rich source of information that has resulted from conducting the survey. Already from this simple overview we can see some interesting results. There are, for example, clear differences between men and women in perceptions of how common certain types of abusive behaviour are. However, for many questions differences between countries are larger than those between men and women within a country. Interestingly such differences are also different depending on the severity of the abuse or violence. In Sweden the perception of women being victims of less violent abuse is higher than in some other countries where instead some more violent types of abuse are reported as being more common. This could, of course, be due to actual differences in actual events but it is also possible that there are differences in what types of behaviour are considered to represent harassment and abuse in different societies. More careful data work is needed to try to answer questions like this and many others. Currently there are a number of ongoing research projects based on the survey results, three of which will be presented at the FREE-network conference on “Economic and Social Context of Domestic Violence” in Stockholm on May 11, 2022. Our hope is that this work will help in taking actions to prevent gender-based abuse and domestic violence based on a better understanding of underlying cross-country differences in social norms and attitudes and their relation to socio-economic factors.

About FROGEE Policy Briefs

FROGEE Policy Briefs is a special series aimed at providing overviews and the popularization of economic research related to gender equality issues. Debates around policies related to gender equality are often highly politicized. We believe that using arguments derived from the most up to date research-based knowledge would help us build a more fruitful discussion of policy proposals and in the end achieve better outcomes.

The aim of the briefs is to improve the understanding of research-based arguments and their implications, by covering the key theories and the most important findings in areas of special interest to the current debate. The briefs start with short general overviews of a given theme, which are followed by a presentation of country-specific contexts, specific policy challenges, implemented reforms and a discussion of other policy options.

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.

The Impact of Rising Gasoline Prices on Swedish Households – Is This Time Different?

Posted on May 2, 2022 | Policy Brief

Oil pumping jacks in sunset representing rising gasoline prices

The world is currently experiencing what can be labelled as a global energy crisis, with surging prices for oil, coal, and natural gas. For households in Sweden and abroad, this translates into higher gasoline and diesel prices at the pump as well as increased electricity and heating costs. The increase in energy-related costs began in 2021, as the world economy struggled with supply chain issues, and intensified as Russia invaded Ukraine at the end of February this year. In response, the Swedish government announced on March 14th this year that the tax rate on transport fuels would be temporarily reduced by 1.80 SEK per liter (€0.17) and that every car owner would receive a one-off lump-sum transfer of 1000 SEK in compensation (1500 SEK for car owners in rural areas). This reduction in transport fuel tax rates in Sweden is unprecedented. Since 1960, the nominal tax rate on gasoline has only been reduced three times – and then only by very small amounts, ranging from 0.04 to 0.22 SEK per liter. In this policy brief, we put the current gasoline price in Sweden into a historical context and answer two related questions: are Swedish households paying more today for gasoline than ever before? And should policymakers respond by reducing gasoline taxes?

The Price of Gasoline in Sweden

Sweden has a long history of using excise taxes on transport fuel as a means to raise revenue for the government and to correct for environmental externalities. As early as 1924, Sweden introduced an energy tax on the price of gasoline. Later in 1991, this tax was complemented by a carbon tax levied on the carbon content of transport fuels. On top of this, Sweden extended the coverage of its value-added tax (VAT) to include transport fuels in 1990. The VAT rate of 25 percent is applied to all components of the consumer price of gasoline: the production cost, producer margin, and excise taxes (energy and carbon taxes). Before the announced tax cut this year, the combined rate of the energy and carbon tax was 6.82 SEK per liter of gasoline. Adding the VAT that is applied on these taxes, amounting to 1.71 SEK, yields a total excise tax component of 8.53 SEK. This amount is fixed in the short run and does not vary with changes in the oil price.

Figure 1. Gasoline pump price: 2000-2022

Source: Monthly data on gasoline prices are provided by SPBI (2022).

Figure 1 shows the monthly average real price of gasoline in Sweden from 2000 to March of 2022. The price has increased over the last 20 years and is today historically high. Going back even further, the price is higher today than at any point since 1960. Swedish households are thus paying more for one liter of gasoline than ever before.

Figure 2. Gasoline expenditure per 100 km

Source: Trafikverket (2022).

However, a narrow focus on the price at the pump does not take into consideration other factors that affect the cost of personal transportation for households. First, the average fuel efficiency of the vehicle fleet has improved over time. New vehicles sold today in Sweden can drive 50 percent further on a liter of gasoline compared to new vehicles sold in 2000. Arguably, what consumers care about most is not the cost of one liter of gasoline per se but the cost of driving a certain distance – the utility we derive from a car is the distance we can travel. Accounting for the improvement over time in the fuel efficiency of new vehicles (Figure 2), we find that even though it is still comparatively expensive to drive today, the current price level no longer constitutes a historical peak. In fact, the cost of driving 100 km was as high, or higher, in the period from 2000-2008.

Second, any sensible discussion of the cost of personal transportation for households should also factor in changes in household income over time. The average real hourly wage has increased by close to 40 percent between 2000 and 2022. As such, the cost of driving 100 km, measured as a share of household income, has steadily gone down over time. Even more, this pattern is similar across the income distribution; for instance, the cost trajectory of the bottom decile group is similar to that of all employees. This is illustrated in Figure 3. In 1991, when the carbon tax was implemented, an average household had to spend around two-thirds of an hour’s wage to be able to drive a distance of 100 km. By 2020, that same household only had to spend one-third of an hour’s wage to drive the same distance. There is an increase in the cost of driving over the last two years but it is still cheaper today to drive a certain distance, in relation to income, compared to any year before 2012.

Taken all of this together, we have seen that over time, vehicles use fuel more efficiently on the expenditure side, and households earn higher wages on the income side. Based on this, we can conclude that the cost of travelling a certain distance by car is not historically high today. On the contrary, when measured as a share of income, it was 50 percent more expensive for most of the 21st century.

Figure 3. Cost of driving as a share of income

Source: Data on average hourly real wages are provided by Statistics Sweden (2022).

Response From Policymakers

It is, however, of little comfort for households to know that it was more expensive to drive their car – as a share of income – 10 or 20 years ago. We argue that what ultimately matters for the household is the short run change in cost – and the speed of this change. If the cost rises too fast, households cannot adjust their expenditure pattern quickly enough and thus feel that the price increase is unaffordable. And the change in the gasoline price at the pump has been unusually rapid over the last 12 months. From the beginning of 2021 until March of 2022, the pump price has risen by around 50 percent.

So, should policymakers respond by lowering gasoline taxes? The possibly surprising answer is that lowering existing gasoline tax rates would be counter-productive in the medium and long run. Since excise taxes are fixed and do not vary with the oil price, they reduce the volatility of the pump price by cushioning fluctuations in the market price of crude oil. The total excise tax component including VAT constitutes more than half of the pump price in Sweden, a level that is similar across most European countries. This stands in stark contrast with the US, where excise taxes only make up around 15 percent of the consumer price of gasoline. As a consequence, a doubling of the price of crude oil only increases the consumer price of gasoline in Sweden by around 35 percent, but in the US by around 80 percent. Furthermore, households across Sweden, Europe, and the US have adapted to the different levels of gasoline tax rates by purchasing vehicles with different levels of fuel efficiency. New light-duty vehicles sold in Europe are on average 45 percent more fuel-efficient compared to the same vehicle category sold in the US (IEA 2021). As such, US households do not necessarily benefit from lower gasoline taxation in terms of household expenditure on transport fuel and are even more vulnerable to rapid increases in the price of crude oil. Having high gasoline tax rates thus reduces – and not increases – the short run welfare impact on households. Hence, policymakers should resist the temptation to lower gasoline tax rates even during the current energy crisis. In the medium and long run, households would buy vehicles with higher fuel consumption and would be more exposed to price surges in the future, again compelling policymakers to adjust tax rates and creating a downward spiral. Instead, alternative measures should be considered to alleviate the effects of heavy price pressure on low-income households – for instance, revenue recycling of the carbon tax revenue and increased subsidies for public transport.

Conclusion

To reach environmental and climate goals, Sweden urgently needs to phase out the use of fossil fuels in the transport sector, which is Sweden’s largest source of carbon dioxide emissions. This is exactly what a gradual increase of the tax rate on gasoline and diesel would achieve. At the same time, it would benefit consumers by shielding them from the adverse effects of future oil price volatility.

The most common response from policymakers goes in the opposite direction. In Sweden, the Social Democrats – the governing party – have announced a tax cut on gasoline and diesel of 1.80 SEK per liter but the political parties in opposition have promised even larger tax cuts. Some proposals would even effectively abolish the entire energy and carbon tax on gasoline. Similar tax cuts have been announced for example in Belgium, France, the Netherlands, and Germany. Therefore, this time is indeed different – but in terms of the exceptional reactions from policymakers rather than in terms of the cost of gasoline that households face.

References

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.

Vaccination Progress and the Opening Up of Economies

Posted on July 5, 2021 | Policy Brief

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In this brief, we report on the FREE network webinar on the state of vaccinations and the challenges ahead for opening up economies while containing the pandemic, held on June 22, 2021. The current state of the pandemic in each respective country was presented, suggesting that infection rates have gone down quite substantially recently in all countries of the network, except in Russia which is currently facing a surge in infections driven by the delta-version of the virus. Vaccination progress is very uneven, limited by lacking access to vaccines (primarily Ukraine and Georgia) and vaccine scepticism among the population (primarily in Russia and Belarus but for certain groups also in Latvia, Poland and to some extent Sweden). This also creates challenges for governments eager to open their societies to benefit their economies and ease the social consequences of the restrictions on mobility and social gatherings. Finally, the medium to long term consequences for labour markets reveal challenges but also potential opportunities through wider availability of work–from-home policies. 

Background

In many countries in Europe, citizens and governments are starting to see an end to the most intense impact of the Covid-19 pandemic on their societies. Infection and death rates are coming down and governments are starting to put in place policies for a gradual opening up of societies, as reflected in the Covid-19 stringency index developed by Oxford University. These developments are partially seasonal, but also largely a function of the progress of vaccination programs reaching an increasing share of the adult population. These developments, though, are taking place to different degrees and at different pace across countries.  This is very evident at a global level, but also within Europe and among the countries represented in the FREE network. This has implications for the development within Europe as a whole, but also for the persistent inequalities we see across countries.   

Short overview of the current situation

The current epidemiological situation in Latvia, Sweden, Ukraine, and Georgia looks pretty similar in terms of Covid-19 cases and deaths but when it comes to the vaccination status there is substantial variation.

Latvia experienced a somewhat weaker third wave in the spring of 2021 after being hit badly in the second wave during the fall and winter of 2020 (see Figure 1). The Latvian government started vaccinating at the beginning of 2021, and by early June, 26% of the Latvian population had been fully vaccinated.

Sweden, that chose a somewhat controversial strategy to the pandemic built on individual responsibility, had reached almost 15 thousand Covid-19 deaths by the end of June of 2021, the second highest among the FREE network member countries relative to population size. The spread of the pandemic has slowed down substantially, though, during the early summer, and the percentage of fully vaccinated is about to reach 30% of the population.

Figure 1. Cumulative Covid-19 deaths 

Source: Aggregated data sources from the COVID-19 Data Repository by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University, compiled by Our World in Data.

Following a severe second wave, the number of infected in Ukraine started to go down in the winter of 2020, with the total deaths settling at about 27 thousand in the month of February. Then the third wave hit in the spring, but the number of new daily cases has decreased again and is currently three times lower than at the beginning of the lastwave. However, a large part of the reduction is likely not thanks to successful epidemiological policies but rather due to low detection rates and seasonal variation. 

In June 2021, Georgia faces a similar situation as Ukraine and Latvia, with the number of cumulative Covid-19 deaths per million inhabitants reaching around 1300 (in total 2500 people) following a rather detrimental spring 2021 wave. At the moment, both Georgia and Ukraine have very low vaccination coverage relative to other countries in the region(see Figure 5).

In contrast to the above countries, Russia started vaccinating early. Unfortunately, the country is now experiencing an increase in the number of cases (as can be seen in Figure 2), contrary to most other countries in the region. This negative development is likely due to the fact that the new Covid-19 delta variant is spreading in the country, particularly in Moscow and St. Petersburg. Despite the early start to vaccinations, though, the total number of vaccinated people remains low, only reaching 10.5% of the population.

Figure 2. New Covid-19 cases

Source: Aggregated data sources from the COVID-19 Data Repository by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University, compiled by Our World in Data.

In some ways similar to Sweden, the government of Belarus did not impose any formal restrictions on individuals’ mobility. According to the official statistics, in the month of June, the rise in the cumulative number of covid-19 deaths and new daily infections has declined rapidly and reached about 400 deceased and 800 infections per one million inhabitants, respectively. Vaccination goes slowly, and by now, around 8% of the population has gotten the first dose and 5% have received the second.

There were two major waves in Poland during the autumn 2020 and spring 2021. In the latter period, the country experienced a vast number of deaths.  As can be seen in Figure 3, the excess mortality P-score – the percentage difference between the weekly number of deaths in 2020-2021 and the average number of deaths over the years 2015-2019 – peaked in November 2020, reaching approximately 115%. The excess deaths numbers in Poland were also the highest among the FREE Network countries in the Spring of 2021, culminating at about 70% higher compared to the baseline. By mid-June, the number of deaths and cases have steeply declined and 36% of the country’s population is fully vaccinated.

Figure 3. Excess deaths

Turning to the economy, after a devastating year, almost all countries are expected to bounce back by the end of 2021 according to the IMF (see Figure 4). Much of these predictions build on the expectations that governments across the region will lift Covid-19 restrictions. These forecasts may not be unrealistic for the countries where vaccinations have come relatively far and restrictions have started to ease. However, for countries where vaccination rates remain low and new variations of the virus is spreading, the downside risk is still very present, and forecasts contain much uncertainty.

 Figure 4. GDP-growth

Vaccination challenges

Since immunization plays such a central role in re-opening the economy and society going back to normal, issues related to vaccinations were an important and recurring topic at the event. The variation in progress and speed is substantial across the countries, though.

Ukraine and Georgia are still facing big challenges with vaccine availability and have fully vaccinated only 1.3% and 2.3% of the population by the end of June, respectively. Vaccination rates have in the recent month started to pick up, but both countries face an uphill battle before reaching levels close to the more successful countries.

Figure 5. Percent fully vaccinated

Other countries a bit further ahead in the vaccine race are still facing difficulties in increasing the vaccination coverage, though not so much due to lack of availability but instead because of vaccine skepticism. In Belarus, a country that initially had bottleneck issues similar to Ukraine and Georgia, all citizens have the opportunity to get vaccinated. However, Lev Lvovskiy, Senior Research Fellow at BEROC in Belarus, argued that vaccination rates are still low largely because many Belarusians feel reluctant towards the vaccine at offer (Sputnik V).

This vaccination scepticism turns out to be a common theme in many countries. According to different survey results presented by the participants at the webinar, the percentage of people willing or planning to get vaccinated is 30% in Belarus and 44% in Russia. In Latvia, this number also varies significantly across different groups as vaccination rates are significantly lower among older age cohorts and in regions with a higher share of Russian-speaking residents, according to Sergejs Gubins, Research Fellow at BICEPS in Latvia.

Webinar participants discussed potential solutions to these issues. First, there seemed to be consensus that offering people the opportunity to choose which vaccine they get will likely be effective in increasing the uptake rate. Second, governments need to improve their communication regarding the benefits of vaccinations to the public. Several countries in the region, such as Poland and Belarus, have had statements made by officials that deviate from one another, potentially harming the government’s credibility with regards to vaccine recommendations. In Belarus, there have even been government sponsored disinformation campaigns against particular vaccines. In Latvia, the main problem is rather the need to reach and convince groups who are generally more reluctant to get vaccinated. Iurii Ganychenko, Senior Researcher at KSE in Ukraine, exemplified how Ukraine has attempted to overcome this problem by launching campaigns specifically designed to persuade certain age cohorts to get vaccinated. Natalya Volchkova, Director of CEFIR at NES in Russia, argued that new, more modern channels of information, such as professional influencers, need to be explored and that the current model of information delivery is not working.

Giorgi Papava, Lead Economist at ISET PI in Georgia, suggested that researchers can contribute to solving vaccine uptake issues by studying incentive mechanisms such as monetary rewards for those taking the vaccine, for instance in the form of lottery tickets. 

Labour markets looking forward

Participants at the webinar also discussed how the pandemic has affected labour markets and whether its consequences will bring about any long-term changes.

Regarding unemployment statistics, Michal Myck, the Director of CenEA in Poland, made the important point that some of the relatively low unemployment numbers that we have seen in the region during this pandemic are misleading. This is because the traditional definition of being unemployed implies that an individual is actively searching for work, and lockdowns and other mobility restrictions have limited this possibility. Official data on unemployment thus underestimates the drop in employment that has happened, as those losing their jobs in many cases have left the labour market altogether. We thus need to see how labor markets will develop in the next couple of months as economies open up to give a more precise verdict.

Jesper Roine, Professor at SITE in Sweden, stressed that unemployment will be the biggest challenge for Sweden since its economy depends on high labor force participation and high employment rates. He explained that the pandemic and economic crisis has disproportionately affected the labor market status of certain groups. Foreign-born and young people, two groups with relatively high unemployment rates already prior to the pandemic, have become unemployed to an even greater extent. Many are worried that these groups will face issues with re-entering the labour market as in particular long-term unemployment has increased. At the same time, there have been more positive discussions about structural changes to the labour market following the pandemic. Particularly how more employers will allow for distance work, a step already confirmed by several large Swedish firms for instance.

In Russia, a country with a labour market that allowed for very little distance work before the pandemic, similar discussions are now taking place. Natalya Volchkova reported that, in Russia, the number of vacancies which assumed distance-work increased by 10% each month starting from last year, according to one of Russia’s leading job-search platforms HeadHunter. These developments could be particularly beneficial for the regional development in Russia, as firms in more remote regions can hire workers living in other parts of the country.

Concluding Remarks

It has been over a year since the Covid-19 virus was declared a pandemic by the World Health Organization. This webinar highlighted that, though vaccination campaigns in principle have been rolled out across the region, their reach varies greatly, and countries are facing different challenges of re-opening and recovering from the pandemic recession. Ukraine and Georgia have gotten a very slow start to their vaccination effort due to a combination of lack of access to vaccines and vaccine skepticism. Countries like Belarus and Latvia have had better access to vaccines but are suffering from widespread vaccine skepticism, in particular in some segments of the population and to certain vaccines. Russia, which is also dealing with a broad reluctance towards vaccines, is on top of that dealing with a surge in infections caused by the delta-version of the virus.

IMF Economic Outlook suggests that most economies in the region are expected to bounce back in their GDP growth in 2021. While this positive prognosis is encouraging, the webinar reminded us that there is a great deal of uncertainty remaining not only from an epidemiological perspective but also in terms of the medium to long-term economic consequences of the pandemic.

Participants

  • Iurii Ganychenko, Senior Researcher at Kyiv School of Economics (KSE/Ukraine)
  • Sergejs Gubins, Research Fellow at the Baltic International Centre for Economic Policy Studies (BICEPS/ Latvia)
  • Natalya Volchkova, Director of the Centre for Economic and Financial Research at New Economic School (CEFIR at NES/ Russia)
  • Giorgi Papava, Lead Economist at the ISET Policy Institute (ISET PI/ Georgia)
  • Lev Lvovskiy, Senior Research Fellow at the Belarusian Economic Research and Outreach Center (BEROC/ Belarus)
  • Jesper Roine, Professor at the Stockholm Institute of Transition Economics (SITE / Sweden)
  • Michal Myck, Director of the Centre for Economic Analysis (CenEA / Poland)
  • Anders Olofsgård, Deputy Director of SITE and Associate Professor at the Stockholm School of Economics (SITE / Sweden)

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.

Carbon Tax Regressivity and Income Inequality

Posted on May 17, 2021 | Policy Brief

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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

Sources: Andersson and Atkinson (2020). Gini coefficients are provided by Statistics 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

Sources: Andersson and Atkinson (2020). Gini coefficients are from the SWIID database (Solt, 2019).

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.

Inequality in the Pandemic: Evidence from Sweden

Posted on March 22, 2021 | Policy Brief

Condominium houses near the water representing inequality during the covid19 pandemic

Most reports on the labor-market effects of the first wave of COVID-19 have pointed to women, low-skilled workers and other vulnerable groups being more affected. Research on the topic shows a more mixed picture. We contribute to this discussion. Using monthly official unemployment data in Sweden we find that across wage levels, occupations with lower salaries display higher increases in unemployment, and low-wage occupations are also more difficult to do from home. The job loss probability is also higher in sectors with a higher concentration of workers born outside of the EU and those aged below 30. But we find no evidence of a gender unequal impact in Sweden. Overall, our results point to higher effects for low-wage groups but small gender differences overall.

Introduction

The ongoing Covid-19 pandemic has affected the health of millions of people worldwide. But it has also had an enormous impact on economic and living conditions through government policies aimed at containing the spread of the infection. While, at the onset of the pandemic, government officials, mainstream media, and even celebrities labeled COVID-19 “the great equalizer” (Mein, 2020), the reality has proven quite different, with the most vulnerable groups of the population appearing to be the most harmed by both the health and the economic crises (see, for instance, The World Economic Forum, Joseph Stiglitz in this IMF article, and The World Bank). In this brief, we focus on one specific economic impact of the pandemic, namely its effect on unemployment status, and we study the extent to which this impact has been unequal across different groups of the Swedish society. Our analysis uses administrative data and segments the population by wage, gender, age, and foreign-born status.

Covid-19 and Inequality in the Labor Market

An extensive review of the emerging literature on the effect of the pandemic on different kinds of inequality is beyond the scope of this brief. However, a number of studies are especially relevant to put our analysis in context, as they are focused on the unequal labor market impacts of the crisis and study real-time data. Based on these studies, a number of patterns emerge. First, the effect of the pandemic on the increased probability of job loss appears stronger for low-skilled workers, as proxied by education level (see e.g., Adam-Prassl et al., 2020, Gaudecker et al.  2020, Casarico and Lattanzio 2020). Gaudecker et al. (2020) also observe that in the Netherlands the negative education gradient has been mitigated by the government identifying some sectors of the economy as essential since some of these sectors are characterized by a high concentration of low-educated workers. Second, the evidence of unequal gender impacts on the probability of job loss is mixed. While survey information from the UK and the US reveals that labor market outcomes for women have more severely deteriorated during the crisis (Adams-Prassl et al., 2020), there is no evidence of unequal impacts by gender in Germany (Adams-Pras et al., 2020) and Italy (Casarico and Lattanzio, 2020). Other papers confirm that the effect on labor-market outcomes by gender varies across contexts (see, e.g.,  Hupkau and Petrongolo, 2020).

Analysis of Labor Market Data From Sweden

Our analysis of the Swedish labor market provides a valuable contribution to the existing findings for a number of reasons. First, despite rising inequality over the past decades, Sweden is characterized by relatively low income inequality (e.g. OECD, 2019), high participation of women in the labor market, and high level of society inclusiveness (e.g. Gottfries, 2019, OECD 2016) among OECD countries. Second, unlike the majority of countries worldwide, throughout the pandemic, Sweden has not adopted stay-at-home orders that would have separated sectors of the economy between “essential” and “non-essential”. As a result, sectors that were typically shut down in other countries, for instance, the hospitality industry, were not ordered to close during the first wave of the pandemic and have then only faced partial limitations during the second wave. Importantly, schools below the secondary level were never closed. Third, as we will describe in more detail below, the availability of administrative information on unemployment claims on a monthly basis allows studying the “real-time” development of unemployment throughout the pandemic for the universe of employees in the Swedish labor market.

Data

We use data from the registry of unemployed individuals kept by the Swedish Public Employment Service (Arbetsförmedlingen), the government agency responsible for the functioning of the Swedish labor market. The incentives for laid-off individuals to register with the Employment Service are high since the registration is directly connected to the right to claim various (relatively generous) unemployment benefits. As such, the data arguably includes a large share of employees who lost their job over the period studied. Based on the high incentives to register as unemployed, we also assume that the probability to register does not differ the segments of the population that we consider. The data does not include some self-employed who for various reasons choose not to register, but this group is not believed to be significant. Also, furloughed workers do not count as unemployed. This group was significant, especially in the very early stages of the pandemic, but still small relative to all unemployed. As of July 2020, they represented 13% of the total pool of unemployed individuals in Sweden (Swedish Agency for Economic and Regional Growth, 2021).

The population-wide coverage is the main advantage of our data vis-à-vis the survey information used in many recent studies of the labor market throughout the pandemic (other studies using administrative data are Casarico and Lattanzi, 2020, studying the Italian labor market, and Forsythe et al., 2020, who analyze the US case).

We consider everyone registered as unemployed/seeking employment each month from January 2019 to July 2020. The data is grouped by 4-digit occupational classification (there are about 440 occupations at this level) and each occupational group is further broken down by sex, age, and foreign-born status (specifically, Sweden born, foreign EU born, and foreign non-EU born.) We then merge this data with information on the average wage by occupational group and gender in 2019, as reported by Medlingsinstitutet and publicly available at Statistics Sweden. This measure, although not being at the individual level, allows us to develop a relatively precise proxy of wages by occupation that we use to rank unemployment by wage deciles.

Evidence

With the data described above, we build the following measure of the change in job-loss probability (JLP) between February and July 2020, adjusted for seasonality:

where u is the number of workers in 4-digit occupational sector who registered as unemployed in a month over the average number of employed in the same sector in 2017 and 2018 (data available at Statistics Sweden). Put it simply, ΔJLP is a sector-level indicator of the change in job loss probability due to the pandemic; it measures the change in chances of job loss between February and July 2020, i.e. between five months after the start of the pandemic and the month before its onset, as compared to the equivalent change the year before. We thus account for seasonal factors by differencing out the job loss probability during the same months of 2019, when the pandemic was neither occurring nor anticipated. Below we use ΔJLP to show differences in the impact of the pandemic on the chances of job loss for different groups of the Swedish society.

Job loss probability by wage deciles. We leverage information on sector-level average wages and the number of employees to partition occupational sectors into (approximate) wage deciles. The purpose of such a partition is to rank sectors as being typically “low-” or “high-” wage within the Swedish context. As we document in Figure 1, the pandemic has increased the probability of job loss across all sectors of the economy; however, this increase in percentage points is higher the lower is the average sector wage, with the category of least-paid workers being the most likely to lose their job. This category includes occupations such as home-based personal care and related workers, cleaners and helpers in offices, hotels and other establishments, or restaurant and kitchen helpers. Considering that the pre-pandemic probability of becoming unemployed was already largest for this group (19.7% compared to the average 6% in 2019), the existing inequality in the labor market has been exacerbated by the Covid-19 crisis. In our regression analysis that is available by request, we also find that accounting for an index of the share of tasks that can be performed from home, defined at 2-digit occupational level, does not explain away the negative and significant relationship between wages and job loss probability. Although, we confirm previous evidence that the probability of losing jobs is lower among occupations that can be performed from home. The substantial contraction in economic activity in some sectors of the economy seems to be the driver of the unequal distribution of job losses.

 Figure 1. Change in job loss probability by wage decile between February and July

Source: Author’s own calculation, for data sources see Data Section.

Job loss probability by gender. Figure 1 also documents that, even though the change in job loss probability is higher in sectors dominated by women, the likelihood of men losing jobs has increased more in these sectors. As a result, in the regression analysis we find that there is no significant association between the share of women in a sector and the sector-level change in job loss probability.

Job loss probability by foreign status and age. We find that workers who are born outside of EU countries are significantly more likely to transition into unemployment during the pandemic (see Figure 2). The difference is striking. Based on our indicator, considering male workers the pandemic has raised the probability of job loss by roughly 7 p.p. more for non-EU citizens as compared to non-Swedish EU citizens, and by 9 p.p. more compared to Swedish citizens. These differences are only slightly smaller for women. Another group particularly affected is that of workers in the age group below 30 (result available upon request). Such patterns are due to foreign-born and younger workers being more concentrated in those low-wage sectors that also appear, based on our analysis, to be more impacted by the pandemic in terms of job loss probability

Figure 2. Change in job loss probability by foreign status between February and July 2020

Source: Author’s own calculation, for data sources see Data section

Conclusion

Our analysis of administrative monthly data on the number of workers who register as unemployed in Sweden confirms previous evidence that the Covid-19 crisis has not been “the great equalizer”. While the pandemic has increased the probability of losing jobs across all sectors, the most affected in Sweden are those workers in occupations where the lowest wages were paid before the pandemic. Considering other demographic characteristics, vulnerable groups that were most impacted by the crisis are workers born outside of the EU and workers aged below 30. However, we do not find evidence of a gender-unequal impact of the pandemic in terms of the probability of job loss. There may of course be many other aspects to the issue along gender lines. For example, on one hand, there might be gender-unequal effects that we cannot observe in our data, for instance in the number of hours worked, temporary unemployment, and level of stress due to increased childcare responsibility. On the other hand, since schools in Sweden stayed open throughout the pandemic, the concerns related to increased childcare responsibility, which have led to identifying mothers as most vulnerable in other countries, do not necessarily apply to the Swedish context.

Sweden has adopted a number of measures to shield workers from the worst effects of the pandemic. As the country plans the recovery, special attention should be devoted to the opportunities for re-employment for the most vulnerable groups. Absent such focus, the economy emerging from the crisis might be less inclusive and equal than it has been before the pandemic, with important consequences for many societal outcomes that are generally linked to labor market inclusiveness.

References

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.