Voxeu

Yellow vests and carbon taxes

Opposition to a carbon tax was at the root of the gilets jaunes protests in France. Did the protestors think the tax wouldn’t work, or that it wasn’t fair, or that they would personally lose out? Adrien Fabre talks to Tim Phillips about the link between tax and trust in government.

The Russia-Ukraine war, European financial integration, and crises

Russia’s invasion of Ukraine added another one to a series of crises affecting Europe over the last decade and a half. This column finds that fragmentation of euro area financial markets has been relatively limited, as policymakers have benefitted from reforms after and experiences with past crises, European countries and authorities reacted with quite some unity, and direct financial exposures to Russia and Ukraine are relatively small.

River pollution: Combating cross-border externalities

In order to improve the water quality of the downstream stretch of the Xin’an River, in 2011 China implemented the Ecological Compensation Initiative, a pioneering policy establishing side payments between upstream and downstream provinces. This column shows that the initiative mitigates cross-border externalities by sharply reducing water pollutant emissions by upstream firms and also induces firms to relocate to neighbouring cities. The findings highlight the potential for bilateral compensation for ecosystem services to reduce pollution.

Variability in the impacts of COVID-19 on student achievement

There is robust evidence that children lost ground academically as a consequence of the pandemic, but less research into how the effects varied by school district and household demographics. Using test data from 2.1 million students across the US, this column finds that remote instruction was a primary driver of widening achievement gaps by race and poverty. The authors argue that low-income districts that taught remotely in 2020-21 will need to spend nearly all of their federal aid on academic recovery to help students recover from pandemic-related achievement losses.

Neighbourhoods won’t be improved by banning the unemployed

Recently, a range of countries have introduced laws prohibiting disadvantaged individuals from moving into public housing in specific areas, for example because they are unemployed or have too low an income, in an attempt to avoid the formation of ghettos and unwanted spatial disparities in the standards of living. This column studies one such law in the Netherlands and finds that it has not been effective in attracting households with higher income levels to targeted neighbourhoods.

Large firms react more strongly to macro shocks, and it matters

It is important to understand the micro drivers of the economy’s reaction to large macro shocks. This column uses French firm-level data from 1993-2020 to study the contribution of the largest exporters to aggregate export fluctuations. The authors find that top exporters explained over 40% of aggregate fluctuations and drove the export collapses during the Global Crisis and the pandemic. Moreover, the 2020 collapse of French exports was driven by the higher sensitivity of large firms to demand shocks rather than disruptions to global value chains.

The long-run labour market effects of the Canada–US Free Trade Agreement

Increased import competition has been found to depress labour market outcomes, leading to pessimism that classic gains from trade are worth the accompanying labour market disruptions. This column examines the effect of the 1989 Canada-US Free Trade Agreement. While Canadian workers suffered short-run displacement and earnings losses in response to increased import competition, long-run labour market outcomes, such as years worked and cumulative earnings, were largely unaffected.

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