Location: Sweden

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

This policy brief explores how Europe and global partners can sustain support for Ukraine’s reconstruction following Russia’s invasion. Drawing from expert discussions at SITE Development Day 2022, it highlights strategies for rebuilding Ukraine’s economy, democracy, and energy infrastructure.

Introduction

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.

Map showing the ten most affected regions in Ukraine from destruction and damage to housing stock as of November 2022, highlighting areas like Donetsk, Luhansk, and Kharkiv — essential data for reconstruction support Ukraine.

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 regulations 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 Kyiv, 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.

Further Reading on Support for Ukraine’s Reconstruction and Post-Conflict Recovery

Additional analyses related to Ukraine’s reconstruction, European security, and post-conflict policy are available in the following reports and policy briefs:

Related publications addressing European policy toward Eastern Europe, post-conflict recovery economics, and the energy crisis in Europe further contribute to understanding the broader geopolitical and economic dimensions of the war’s impact. For comprehensive research and expert insights on Ukraine’s reconstruction, European aid, and post-war recovery, explore the FREE Network policy briefs under the Ukraine and Russo-Ukrainian War categories.

Who Benefitted from the Gasoline Tax Cut in Sweden?

Posted on September 2, 2022 | Policy Brief

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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 PROJECT, 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

20210622 Reopening Soon Webinar Image 01

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

20210517 Carbon Tax Regressivity FREE Network Image 01

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.

Addressing the COVID-19 Pandemic: Vaccination Efforts in FREE Network Countries

Posted on March 1, 2021 | Policy Brief

Preparing Covid Vaccine on Pink Surface representing COVID-19 vaccination

There are great expectations that vaccinations will enable a return to normality from Covid-19. However, there is massive variation in vaccination efforts, vaccine access, and attitudes to vaccination in the population across countries. This policy brief compares the situation in a number of countries in Eastern Europe, the Baltics, the Caucasus region, and Sweden. The brief is based on the insights shared at a recent webinar “Addressing the COVID-19 pandemic: Vaccination efforts in FREE Network countries” organized by the Stockholm Institute of Transition Economics.

Introduction

As of February 16, 2021, the total number of confirmed COVID-19 deaths across the globe has reached 2.45 million according to Our World in Data (2021).  Rapid implementation of vaccination programs that extend to major parts of the population is of paramount importance, not only from a global health perspective, but also in terms of economic, political, and social implications.

Eastern Europe is no exception. Although many countries in the region had a relatively low level of infections during the first wave of the COVID-19 pandemic in the spring of 2020, all have by now been severely affected. Vaccination plays a key role for these economies to bounce back, especially as many of them depend on tourism, trade, and other sectors that have been particularly hurt by social distancing restrictions.

 Figure 1. Cumulative confirmed COVID-19 cases (top panel) and deaths per million (bottom panel) in the FREE Network region

Source: John Hopkins University CSSE COVID-19 visualizations: Ourworldindata.org/coronavirus

Against this background, the Stockholm Institute of Transition Economics invited representatives of the FREE Network countries to discuss the current vaccination efforts happening in Eastern Europe, the Baltics, and the Caucasus (the represented countries were Belarus, Georgia, Latvia, Poland, Russia, Sweden, and Ukraine). This brief summarizes the main points raised in this event.

Vaccination Status

In Latvia, Poland, and Sweden, the second wave of infections started to pick up in November 2020 and peaked according to most COVID-19 impact measures in early 2021. As all three countries are members of the EU and take part in its coordinated efforts, they have all received vaccines from the same suppliers (i.e. Astra/Zeneca, Moderna, and Pfizer/BioNTech).

Latvia had problems early on with getting the vaccination process off the ground. The health minister was blamed for the slow start since he declined orders from Pfizer/BioNTech in the early stages, and was forced to resign. As of February 16, two doses per 100 people have been distributed primarily to medical staff, social care workers, and key-state officials.

Figure 2. Cumulative COVID-19 vaccination doses per 100 people

Source: Our world in data, last updated February 24th, 2021. This is counted as a single dose, and may not equal the total number of people vaccinated. Visualizations: Ourworldindata.org/coronavirus

With the first phase starting in late December, Sweden has by February 16th, 2021, fully vaccinated 1,05% of the population while experiencing serious problems with delivery and implementation. As planning and delivery of vaccines are centralized while the implementation is decided regionally, there have been some unclarities regarding who stands accountable for issues that emerge. Guidelines, issued by the Public Health Agency of Sweden, for how to prioritize different groups have been changed a couple of times. Currently, the (non-binding) recommendation is to prioritize vaccinating people living in elderly care homes, as well as personnel working with this group, followed by those above 65 years of age, health care workers, and other risk groups.

Looking at regional statistics there are significant differences in vaccinating people across regions with an average of 70% usage rate of delivered vaccines, and with lows at 40-60%, see figure 3. Reasons for this remain unclear.

Figure 3. Distributed relative to delivered vaccines across counties (län) in Sweden.

Source: Authors’ calculations based on data collected by the Public Health Agency of Sweden. Last updated February 14th, 2021.

Poland has so far been somewhat more efficient than Sweden in its vaccination efforts. Despite turbulent political events over the last couple of months, it has managed to distribute 5.7 doses per 100 people. The country has just finished the first phase of the national vaccination plan, which focused on vaccinating healthcare personnel, and has now entered the second phase with a shifted focus towards elderly care homes, people above 60 years of age, military, and teachers.

Among the countries that are not members of the EU, and thus, not taking part in its coordinated vaccination efforts, the vaccination statuses are more diverse.

Russia was fast in developing and approving the Sputnik V vaccine. The country started vaccinating in early December, although only people in the age of 18-60 in prioritized occupations such as health care workers, people living and working in nursing homes, teachers, and military. At the start of 2021, the program extended to people above 60 and, on January 16, all adults were given the possibility to register themselves and get vaccinated within one week. There are no precise data at the moment, but the fraction of the population vaccinated is likely to be higher than 1%.

Others in the region have faced greater challenges in signing contracts with vaccine suppliers. Georgia and Ukraine are still waiting to secure deliveries and have not yet started to vaccinate. Being outside the EU agreements and with public and political mistrust towards Sputnik V and Russia alternatives are being explored. Georgia has ordered vaccines through the COVAX platform (co-led by Gavi, the Coalition for Epidemic Preparedness Innovations (CEPI) and WHO) but there are concerns about potential delays in deliveries. In terms of prioritizing groups once vaccinations can start, both Ukraine and Georgia have set similar priorities as other countries, with extra focus on health-care and essential workers, age-related risk groups, and people with chronic illnesses.

While Belarus’ official figures on the death toll have been widely perceived as unrealistic from the beginning, the most accurate and recent data shows an excess deaths rate of about 20% in July. The country has no precise data on vaccinations, but some reports have emerged based on interviews with government officials in the Belarusian media. These suggest that around 20,000 imported doses of Sputnik V have been distributed mainly to medical professionals and an additional 120,000-140,000 doses have been promised by Russia.

Main Challenges

The discussion during the Q&A session at the webinar concerned the economic and political implications of vaccinations in the region.

Pavlo Kovtoniuk, the Head of Health Economics Center at KSE in Ukraine, stressed the importance of a coordinated vaccination effort in Europe with regards to geopolitics. There is a clear EU vs Non-EU divide in the vaccination status across European countries. The limited vaccine availability in Non-EU countries such as Ukraine, Georgia, and Belarus offers opportunities for more influential nations like Russia and China to pressure and affect domestic policy in these countries.

Also highlighting the fact that no one is safe until everybody is safe, Lev Lvovskiy, Senior Research Fellow at BEROC in Minsk, noted that vaccination efforts in Europe are important for recovery in small open economies like Belarus as many of its trade partners currently have imposed temporary import restrictions.

Similar to the political crisis happening alongside the pandemic in Belarus, the challenges we see in Poland – protests against the recent developments regarding abortion rights and attempts by the government to limit free media – have deflated the urgency to vaccinate in terms of its future economic and political implications, according to Michal Myck, director of CenEA in Szczecin.

Looking forward, another major challenge for the region is vaccine skepticism. Not only do many countries have to build proper infrastructure that can administer vaccines at the required scale and pace, but also make sure that people actually show up. In Latvia, Poland, Georgia, Russia, and Ukraine, polls show that less than 50% of the population are ready to vaccinate. Sergejs Gubin, Research Fellow at BICEPS in Riga, highlighted that there can be systematic variation in the willingness to vaccinate within countries as e.g. Russian-speaking natives in Latvia have been found to be less prone to vaccinate on average. Also, most of the skepticism in Georgia has been more directed towards the Chinese and Russian vaccine than towards those approved by the EU, according to Yaroslava Babych who is lead economist at ISET in Tbilisi.

Even though vaccine skepticism is an issue in Russia too, Natalya Volchkova, Director of CEFIR at New Economic School in Moscow, pointed to the positive impact of “bandwagon effects” in vaccination efforts. When one person gets vaccinated, that person can spread more accurate information about the vaccine to their social circle, resulting in fewer and fewer people being skeptical as the share of vaccinated grows. In such a scenario vaccine skepticism can fade away over time, even if initial estimates suggest it is high in the population.

Concluding Remarks

Almost exactly a year has passed since Covid-19 was declared a pandemic. The economic and social consequences have been enormous. Now vaccines – developed faster than expected – promise a way out of the crisis. But major challenges, of different types and magnitudes across the globe, still remain. As the seminar highlighted, there are important differences across transition countries. Some countries (such as Russia) have secured vaccines by developing them, but still face challenges in producing and distributing vaccines. Others have secured deliveries through the joint effort by the EU, but this has also had its costs in terms of a somewhat slower process (compared to some of the countries acting on their own) and sharing within the EU. For some other countries, like Belarus, Ukraine, and Georgia, the vaccination is yet to be started. All in all, the choice and availability of vaccines across the region illustrates how economic and geopolitical questions remain important. Finally, for many of the region countries vaccine skepticism and information as well as disinformation are important determinants in distributing vaccines. Summing up, the combination of these factors once again reminds us that how to best get back from the pandemic is truly a multidisciplinary question.

List of Participants

  • Iurii Ganychenko, Senior researcher at Kyiv School of Economics (KSE/Ukraine)
  • Jesper Roine, Professor at Stockholm School of Economics (SSE) and Deputy Director at the Stockholm Institute of Transition Economics (SITE/ Sweden)
  • Lev Lvovskiy, Senior Research Fellow at the Belarusian Economic Research and Outreach Center (BEROC/ Belarus)
  • Michal Myck, Director of the Centre for Economic Analysis (CenEA/ Poland)
  • Natalya Volchkova, Director of the Centre for Economic and Financial Research  ­New Economic School (CEFIR NES/ Russia)
  • Pavlo Kovtoniuk, Head of Health Economics Center at Kyiv School of Economics (KSE/Ukraine)
  • Sergej Gubin, Research Fellow at the Baltic International Centre for Economic Policy Studies (BICEPS/ Latvia)
  • Yaroslava V. Babych, Lead Economist at ISET Policy Institute (ISET PI/ Georgia)

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.

Video of the FREE Network webinar “Addressing the Covid-19 Pandemic: Vaccination Efforts in Free Network Countries“

Domestic Violence in the Time of Covid-19

Posted on October 12, 2020 | Policy Brief

20201012 Domestic Violence in the Time of Covid-19 Policy Brief image 01

 Since the outbreak of Covid-19 in the spring of 2020, media outlets around the world have reported increases in domestic violence. United Nations secretary-general António Guterres has even referred to it as a “shadow pandemic”. Besides news outlets, academic researchers have also taken an interest in the issue, which is crucial if we are to draw the right conclusions from the patterns we see in the statistics. Preliminary evidence shows that the incidence of intimate partner violence has also increased in Sweden, notwithstanding the absence of a strict lockdown. This is likely related to the socio-economic changes brought about by the pandemic.

A Shadow Pandemic?

In response to the Covid-19 pandemic, governments around the world introduced a variety of measures aimed to stave off the contagion, and billions of worried people adapted their behavior and lifestyle. But did the pandemic, and the changes brought by it, also lead to an increase in domestic violence?

Were we to simply look at the number of domestic violence offenses reported over time, we would not be able to answer this question. Historical trends and seasonal patterns in domestic violence would confound this observation, while the crisis might affect the reporting of crimes independently of their occurrence. More rigorous statistical analysis is needed for understanding not only the true situation with domestic violence under the pandemic, but also the reasons behind it. Investigating the driving factors is crucial for informing policy reactions already in the short run — is it a loss of income that generates violence, or could it simply be increased exposure? Do we need more unemployment benefits or shelters for victims?  ­­Moreover, the rather special conditions created by the pandemic can contribute to our general understanding of how domestic violence occurs in relation to other societal dynamics, unveil some of the causal mechanisms that are still open questions in the literature and help to fight this issue further, even after the pandemic is over.

Socio-economic Theories of Violence

Within social science research, studies that focus on the relationship between domestic violence and factors at a societal level can be divided into several different branches. A large corpus of theories interprets violence as a result of power imbalance within households. This perspective is associated with explanations such as bargaining power, exit options, and status, theoretical concepts that are often embodied and approximated by observable factors such as (relative) education, income or employment status. For example, Aizer (2010) provides results in line with the bargaining power hypothesis showing that a decrease in the gender wage gap in the US is associated with a decrease in domestic violence against women. Along the same lines, Anderberg et al. (2016) use UK data to show that an increase in unemployment among men reduces the incidence of intimate partner violence (IPV) while an increase in unemployment among women increases it. In contrast, a study from Spain documents the opposite relationship in provinces characterized by stronger traditional gender roles (Tur-Prats, 2019). It finds that a decrease in female relative to male unemployment causes an increase in violence, which is more in line with the “backlash explanation” — when a woman improves her economic position and independence, the man in the household feels that his identity as breadwinner is threatened and retaliates with violence as a result. Studies such as Iyer et al. (2012) and Miller and Segal (2018) highlight the importance of improving the position of women in society, which can be achieved, for example, through role models and female representation in critical positions. They associate the proportion of women among elected politicians and among the police, in India and the United States respectively, with a significant increase in reports of crimes against women and at the same time a significant decrease in the incidence of such crimes.

An alternative interpretation of domestic violence puts more emphasis on its emotional and irrational nature. In this case, particular events or negative emotional shocks, such as an unexpected negative result of an important football match (Card and Dahl, 2011), are believed to trigger violent reactions in the heat of the moment. The likelihood of such incidents is exacerbated by stress and emotional climate within a household, which in turn are influenced by economic conditions or financial uncertainty. For example, several studies from developing countries associate improvements in general economic conditions with a reduction in domestic violence (Hidrobo et al., 2016; Kim et al., 2007; Haushofer et al., 2019).

Finally, there is a common perception that domestic violence increases during holidays and weekends as families spend more time together and potential victims are more isolated from their social networks, in line with the so-called exposure model in criminology. So far, research on this hypothesis is limited and incomplete. However, it is precisely one of the areas where studies from the recent months may fill the knowledge gap: the fact that lockdowns and work from home  forced many families to spend more time together at home while retaining full wages, gives a unique opportunity to examine exposure in isolation from other economic factors.

The opposite of exposure is known as (self-) incapacitation theory: no aggression will occur while a (potentially violent) partner is occupied with something else, whether imposed or self-chosen. Several studies focusing on this hypothesis have documented that the incidence of violent crimes declines, on the street or in the home environment, when potential perpetrators are in school (Jacob and Lefgren, 2003), in prison (Levitt, 1996), at the cinema (Dahl and DellaVigna, 2009) and when they have access to a legal prostitution market (Cunningham and Shah, 2018; Ciacci and Sviatschi, 2018; Berlin et al., 2019). During a lockdown, the availability of such activities is restricted, both to violent people as well as potential victims.

Research on Domestic Violence During Covid-19

The list of studies analyzing data from the past few months is growing by the day. Although full consensus is yet to be reached, the results that have emerged point towards a few patterns: spikes in domestic violence can be credibly connected to strict limitations of movement, at least in some contexts (India, Ravindran and Shah, 2020; Peru, Agüero, 2020; 15 large US cities, Leslie and Wilson, 2020);  unemployment could be an important mechanism (Bhalotra et al., 2020; in Canada, Beland et al., 2020 find no impact of unemployment or work arrangements per se, but do associate spikes in violence to financial difficulties); alcohol does not seem to amplify domestic violence during the pandemic, at least in some context (Silverio-Murillo and Balmori de la Miyar do not find any effect of the prohibition to sell alcohol in parts of Mexico City); and by and large barriers to reporting might be a serious issue (Spencer et al, 2020).

A selection of studies on domestic violence during the Covid-19 crisis, many of which are as yet unpublished, were presented at the recent FROGEE Workshop “Economic Perspectives on Domestic Violence”. Two FREE Policy Briefs summarizing the event are forthcoming.

Domestic Violence in Sweden During Covid-19

Studying Sweden against this background can be particularly interesting for at least two reasons. Sweden regularly occupies the top positions in international rankings of gender equality in many dimensions and is seen as having advanced progressive norms and attitudes in this area. As pointed out by the literature on the economic determinants of domestic violence, underlying norms and attitudes can play a significant role in shaping the impact of other factors, such as unemployment (Tur-Prats, 2019). Therefore, the Swedish case can offer a valuable comparison to studies focusing on countries that have different attitudes and norms.

According to estimates by the National Council for Crime Prevention (BRÅ), at least 7% of the Swedish population is exposed yearly to domestic violence, both men and women in roughly equal parts. However, women are much more likely to report recurring violence and to end up hospitalized.

When it comes to the particular situation of the Covid-19 crisis, Sweden is also close to unique in its contagion-management strategy. Swedish policy relied much more than elsewhere on voluntary participation and individual responsibility rather than coercion. Certainly, working from home when possible was encouraged, the use of public transport discouraged, and indoor events with more than 500, and thereafter 50 participants were forbidden, which included many sports and cultural events. In fact, the Google mobility index, based on location data from Google Account users, shows patterns of clear deviation from the baseline since week 11 of 2020, when the authorities declared a very high risk of community spread.

Figure 1. Mobility patterns in Sweden during Covid-19

Source: Author’s aggregation of Google mobility index. The lines show the deviation from baseline, in percentual terms, of total user presence in different urban areas by category.

The plots in Figure 1 show that the presence of Google Account users was about 10% higher in residential areas (the pink line) and much lower in workplaces, despite some variation over the period: the initial decline was roughly half as large as the impact of summer vacation, as shown by the blue line. Also, visits to retail centers and grocery stores, recreation places (such as restaurants, cinemas, and theaters), and transit stations decreased, especially during the beginning of the period. Mobility in parks and green areas, shown separately, follow to a larger extent a seasonal pattern.

Nevertheless, the general population was never forbidden or even discouraged from leaving their homes, which clearly makes a stark difference for many of the mechanisms that, based on the literature, we think could play a role in explaining domestic violence.

According to BRÅ, during the first half of 2020, there was a 1% increase in total reported crime compared to the same period of the previous year. However, there is wide variation among the crime categories: 9% more violent assaults against women were reported, and 4% more against men, but 6% fewer rapes of women and 9% fewer rapes of men. As discussed above, it is not straightforward to draw conclusions from simple comparisons over time. Preliminary analysis utilizing the variation in mobility patterns over weeks and municipalities reveals that a 10% increase in residential mobility is associated with a (lower bound) increase in reported non-battery crimes against women committed by an intimate partner by 0.015 crimes per 10,000 individuals (a sixth of the mean). The corresponding figure for a 10% reduction in mobility in retail and recreation areas and transit mobility is around 0.0025 additional crimes (3% of the mean) (see Figure 2). Crime categories include attempted or planned homicides; sexual molestations, sexual assaults, and rapes; violations of integrity and privacy (including limitation of freedom, coercion, threats, persecutions; battery crimes are not included for the time being because of a coding mistake in the police system pertaining this particular category).

Figure 2. Mobility patterns and IPV in Sweden during Covid-19 – non-battery crimes

Source: Author’s analysis. Crime data provided by the police, mobility index provided by Google.

We consider this a lower bound because of the voluntary nature of the Swedish ”lockdown” – if people have the freedom to choose, then it is reasonable to expect that individuals more exposed to the risk of domestic violence would decide to be less at home, which would reduce the strength of the relationship observed. In the opposite direction, we might be worried that when more people are at home, more crimes are reported by a third party, such as neighbors, and thus not implying that more crimes are being committed. However, we differentially see more reported crimes with a female victim than with a male victim, which is not necessarily easy for a third party to distinguish by the sounds. Therefore, it seems likely that, based on the changes in mobility patterns, IPV against women has increased in Sweden during the Covid-19 crisis. Other consequences of the crisis that might also play an important role in shaping IPV and domestic violence, including the huge increase in unemployment and changes in alcohol sales, remain to be investigated.

Conclusion

In conclusion, research from the past months finds some limited support for hypotheses originating from previous literature on the relationship between different socio-economic factors and domestic violence. When these factors were affected by the pandemic and the associated economic crisis, domestic violence responded as well, to a varying extent depending on the context. This can be seen as an indirect and hidden cost of the pandemic.

Preliminary evidence indicates a similar case for Sweden, notwithstanding the absence of a strict lockdown. This implies that a significant part of the changes in behavior, which in turn can be expected to affect domestic violence, have occurred as a response to the pandemic itself and not necessarily as a result of policy measures.

While the shock of the pandemic will help us to better understand some of the underlying mechanisms behind the phenomenon of domestic violence, many questions are still open, and it is important to look beyond the pandemic. Domestic violence existed before Covid-19 and will, unfortunately, remain part of our societies when the pandemic is over. Investigating and understanding its determinants is important in order to formulate proper policies to combat it during and after the crisis.

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.

Governance in the Times of Corona: Preliminary Policy Lessons from Scandinavia

Posted on June 25, 2020 | Policy Brief

Areal image of empty restaurant tables with only one table occupied by two people representing governance and Covid-19

This policy brief summarizes the key points discussed in the webinar entitled “How did we end up here? Governance lessons from the Covid-19 pandemic” which was organized by CEPR, LSE IGA, SPP and SITE on June 18, 2020. The main insights concern the relationship between science and expert authorities on the one hand and elected and democratically accountable political institutions on the other hand. The Covid-19 pandemic has illustrated the need to strike a balance between being prepared and having a plan, and at the same time being able to take in new information and learn as new challenges unfold. This requires drawing on expertise from multiple fields as well as keeping an open mind to reevaluate chosen strategies when necessary.

Introduction

Economists have long reflected upon the potential benefits from separating the short-run decision making and implementation of policies from the overarching long-run goals. Central bank independence is probably the most prominent example, but the general idea of elected politicians transferring decisions to technocrats is widespread and, in different forms and to a different extent, part of the governance structure of all countries.

In the context of the corona crisis, governance issues have also been discussed, and the pros and cons of different systems are under debate: China, with its authoritarian system, has found it easier to control its population’s movements than many hard-hit European countries. In the US, the duality between the federal government and strong states has caused a lot of tensions. In Brazil, strong mayors and state governments have partly succeeded in counterbalancing the federal policy by imposing lockdown measures at the local level. The Covid-19 crisis is special: as a global health crisis, it certainly requires more coordination and expert knowledge than most other types of crises. Hence, in all countries, epidemiologists have received particular attention, but even internationally the Swedish state epidemiologist Anders Tegnell stands out with regards to this.

In the webinar entitled “How did we end up here? Governance lessons from the Covid-19 pandemic” which was organized by CEPR, LSE IGA, SPP and SITE on June 18, economists Karolina Ekholm and Bengt Holmström discussed governance issues within the Covid-19 crisis with a special focus on the Nordic countries. Ekholm is a professor at Stockholm University, former deputy governor of the Swedish Central Bank and served as a state secretary at the Swedish Ministry of Finance until 2019. Holmström, professor at the MIT and Nobel prize laureate, has been part of the Finnish commission on corona. Finland’s approach to the Covid-19 crisis has been widely approved of: the country imposed an early lock-down which seems to have successfully contained the spread of the virus. Sweden, by contrast, has made headlines all over the world due to its relatively loose policy approach, and more recently, due to the high death toll the country has recorded so far. How have governance issues contributed to these very different outcomes and what can we learn from this for the larger picture?

A Transdisciplinary Approach for a Multidimensional Crisis

Holmström contributed with an instructive account of his experience advising the Finnish government. The initial forecast turned out to be overly pessimistic, according to him, partly because epidemiologists underestimated a driving force behind people´s behavior: fear. If people had not been so afraid of the virus, compliance with the restrictions may have been much lower. This is not to blame epidemiologists: economists have struggled for decades to understand people’s behavior better and to integrate it into their models, which is everything but an easy exercise. But what policymakers can certainly learn from the first wave of Covid-19 is that the societal appreciation of the urgency of the pandemic can make a crucial difference and will determine whether policies fail or succeed. This may be of vital importance if a second wave of the virus is to follow. Moreover, scientists need to remember to update their models. What has worked for the swine flu may not work for Covid-19. As noted by one of the webinar participants: what is needed now is a forward-looking approach to science.

The Pitfalls of Technocratic Rule

Economists tend to focus on the benefits of technocratic rule in opposition to government corruption. This may be true in certain contexts, but technocratic rule is not a panacea. A priori, health experts are better informed than politicians during a health crisis. The Swedish, as well as the Finnish and the UK governments, were following their health agencies’ advice at the beginning of the Covid-19 outbreak. Yet, the governments in Helsinki and London departed from this policy quite early. According to Ekholm, the Finnish government soon overruled expert advice because they expected that voters would punish politicians who did not prioritize saving lives. A reason which is often invoked to explain why the Swedish government has not followed the Finnish example is that the Swedish constitution does not allow ministerial rule. Yet, this is unlikely to be decisive in the comparison to Finland, which also has a tradition of autonomous government agencies. Ekholm thinks that the evaluation of the health agencies in Scandinavia made at the outset of the crisis did not differ much from each other – with the exception of the Swedish health agency being more pessimistic with regards to the possibility of suppressing the spread of the virus by going into lock-down. The Swedish health agency also still enjoys high approval and confidence both from politicians and the general public. However, why it took so long for the health agency to push for more testing capacity remains a mystery to the webinar speakers.

Holmström mentioned another reason for exercising caution: just as economists, epidemiologists tend to fall for their standard models and may not question them enough. Scientists are trained to reason along their disciplines’ main paradigms and models and this can limit their intellectual flexibility and ability to analyze new phenomena. In this sense, having a lot of experience can sometimes lead to being overly confident in solutions which have been “proven before” as for instance, the idea of “herd immunity”.

The Use of Scientific Evidence

Science is supposed to be objective and transparent, but from an epistemological point of view, things are ambiguous. Holmström named the example of face masks, which have become the symbol of the Covid-19 pandemic elsewhere, but which are still rare on the streets of Stockholm and Helsinki. The Swedish and Finnish health authorities have hesitated to endorse the use of face masks, mainly because there is little evidence of their efficiency. Yet, other countries have endorsed them, following the very argument that there is little evidence of their harmfulness. Which question you are asking – whether masks help fight the spread of the virus or whether they may cause any collateral damage – determines which conclusion you come to. While a priori this may appear mostly as a philosophical question, the stakes are high in a health crisis and the dimensions of the current pandemic may very well justify adherence to the principle of precaution, according to Holmström.

Efficiency vs. Resilience

Economists’ workhorse model by contrast tends to be that of optimization: minimizing costs and maximizing efficiency or welfare. Particularly in the context of healthcare, this approach has been subject to criticism, though. Ekholm confirmed that the health sector in Sweden has been slimmed down, partly following extensive privatizations. In Sweden, another issue has been the lack of coordination between the national, the regional (largely responsible of healthcare) and the local level (responsible of nursing homes). Ekholm believes that there are many lessons to be learned from the numerous failures in vertical and horizontal cooperation between different Swedish governance institutions. Conferring more responsibilities to the European level in the domain of health could be efficient but both speakers agree that, despite generally high approval of the European Union, the Swedish and the Finnish public are unlikely to agree to such measures.

Conclusions

All conclusions we draw at this point must necessarily be preliminary. First, the Covid-19 crisis has challenged local, regional, national and supranational governance more than any previous crisis. The reasons for this are manifold: Covid-19 has grown from a health emergency to becoming an economic, social, political and potentially financial crisis. Second, the merits and pitfalls of technocratic rule must be evaluated. No single expert authority can – or should – claim the sole power of interpretation when facing a multidimensional crisis such as the current one. Considering this, it seems advisable that scientists with different expertise be included in a transparent decision-making process that then is clearly and openly communicated to the public. Crucially, all decisions and rules must be updated constantly, as new evidence arises; there is no room for dogmatism. Finally, there is no doubt that society has to become more resilient in the future. Whether this is to be achieved via supranational integration, investments in research and healthcare, more efficient crisis management mechanisms, or a combination of all these, is to be evaluated.

List of Speakers

Karolina Ekholm, Professor, Stockholm University and Fellow, CEPR

Bengt Holmström, Paul A. Samuelson Professor of Economics, MIT

Chair and Moderator:

Erik Berglöf, Director, Institute of Global Affairs, LSE School of Public Policy and Fellow, CEPR

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.