Policy Research Working Paper series publication roundup for January 16-January 31, 2022

This blog is a biweekly feature highlighting recent working papers from around the World Bank Group that were published in the World Bank’s Policy Research Working Paper Series. This entry introduces five papers published from January 16 to January 31 on various topics, including fuel subsidies, sovereign bonds, and refugees.   

For the second blog post of 2022, we introduce two fascinating papers that deal with topics related to fossil fuel reform and another one that puts sovereign bonds in a historical perspective. In Illicit Schemes : Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling, Jun Rentschler and Nobuhiro Hosoe develop a computable general equilibrium model for Nigeria, which accounts for informality, tax evasion, and fuel smuggling. In Sovereign Bonds since Waterloo, Carmen Reinhart and coauthors study external sovereign bonds as an asset class by compiling a new database of 266,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 and 2016, covering up to 91 countries.

• Illicit Schemes : Fossil Fuel Subsidy Reforms and the Role of Tax Evasion and Smuggling studies the impact of fuel subsidy reform on consumption, tax incidence, and fiscal efficiency and shows that the presence of illicit activities substantially strengthens the argument in favor of subsidy reform. The paper reveals that fuel subsidy reform can shift the tax base to energy goods, which are less prone to tax evasion losses. It also suggests that by reducing price differentials with neighboring countries, subsidy reform reduces incentives for fuel smuggling. Overall, the results show that considering illicit activities reduces the welfare losses of fuel subsidy reform by at least 40 percent.
• The main insight in Sovereign Bonds since Waterloo is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns average more than 6 percent annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of 3–4 percent above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. Central to this finding are the high average coupons offered on external sovereign bonds.

The next three papers address interesting topics including heat and criminal records, long-term effects of migration and women in paid employment. In Heat, Crime and Punishment, Patrick Behrer and Valentin Bolotnyy use administrative criminal records from Texas to show how heat affects criminal defendants, police officers, prosecutors, and judges. In Long-Term Effects of the 1923 Mass Refugee Inflow on Social Cohesion in Greece, Elie Murard analyses the long-term social integration of refugees and the effect of their resettlement on social cohesion in the context of the aftermath of the 1919–1922 Greco-Turkish conflict, in which 1.2 million Greek Orthodox were forcibly displaced from Turkey to Greece. Finally, in Women in Paid Employment: A Role for Public Policies and Social Norms in Guatemala, Rita Almeida and Mariana Viollaz examine women labor participation rates in Guatemala and show how social norms, attitudes toward women in society, and public policies are important determinants of recent changes in these rates.

• Heat, Crime and Punishment shows arrests increase by up to 15 percent on hot days, driven by increases in violent crime. There is no evidence that charging-day heat impacts prosecutorial decisions. However, working alone, judges dismiss fewer cases, issue longer prison sentences, and levy higher fines when ruling on hot days. Higher incomes, newer housing, more teamwork, and less accessible weapons may decrease these adverse effects of heat. In Figure 1 below, Panel A reports the average annual number of arrests per capita in each Texas county from 2010 to 2017. Panel B reports the average number of > 90◦F days by county per year over the same time period.

Figure 1: Maps of arrests and heat across Texas

• Long-Term Effects of the 1923 Mass Refugee Inflow on Social Cohesion in Greece analyses the long-term social integration of refugees and the effect of their resettlement on social cohesion. By combining historical and modern population censuses and surveys, this paper finds that, by the 2000s, refugees display a high rate of intermarriage with Greek natives, report levels of trust in others and in institutions similar to natives and exhibit higher political and civic participation. The historical refugees’ integration starkly contrasts with the social marginalization of recent Albanian immigrants who, unlike the former, neither spoke Greek nor had the same religion as locals upon arrival. These results suggest that early investments in inclusion policies can be effective at fostering refugees’ assimilation, at least when newcomers and locals have similar cultural profiles.
• Women in Paid Employment: A Role for Public Policies and Social Norms in Guatemala finds that between 2002 and 2018, the female labor force participation (FLFP) rate increased 5.7 percentage points, from an average of 26 to 32 percent nationwide. This increase was partly explained by the drastic increases in the educational attainment of women, the reduction in fertility, and the country’s structural transformation toward services. However, a large component remains unexplained. Exploring 2018 data, the paper shows that social norms, attitudes toward women in society, and public policies are important determinants of these changes. Figure 2 below shows simple municipal-level correlations across FLFP, and several of FLFP drivers. The strong and positive association with the per capita GDP (Panel A) suggests that Guatemalan municipalities are in the upward “U-shaped” curve with development. There is also a positive association with the share of households owning a washing machine (Panel B) suggesting that this type of home technology can free-up time that can be re-allocated to work outside the home. The positive correlation of FLFP with the share of women participating in main household decisions (Panel C) suggests that more gender-balanced societal norms within the household can be an important driver of FLFP. There is a positive relationship with the municipality road accessibility measure (Panel D) suggesting that access to better infrastructure can boost FLFP through reductions in commuting time. A strong negative association with the number of children in the household (12 years or less) suggests that mothers are less likely to work than other women. Finally, municipalities with higher shares of employment in the primary sector tend to have lower FLFP rates as well (Panel F).

Figure 2. Correlations between FLFP and municipal level variables capturing household characteristics, social norms, local labor market factors, and public policy

The following are other interesting papers published in the second half of January. Please make sure to read them as well.

1. Public Debt Reporting in Developing Countries (Rivetti,Diego)
2. Can Economics Become More Reflexive Exploring the Potential of Mixed-Methods (Rao,Vijayendra)
3. Local Peace Agreements and the Return of IDPs with Perceived ISIL Affiliation in Iraq (Parry,Jacqueline Margarethe,Aymerich,Olga)
4. Social Cohesion and Refugee-Host Interactions : Evidence from East Africa (Betts,Alexander Milton Stedman,Stierna,Maria Flinder,Omata,Naohiko,Sterck,Olivier Christian Brigitte)
5. How Do Shared Experiences of Economic Shocks Impact Refugees and Host Communities Evidence from Afghan Refugees in Iran (Hoseini,Mohammad,Dideh,Mahsa Jahan)
6. The Impacts of Lockdown Policies on International Trade in the Philippines (Arenas,Guillermo Carlos,Majune,Socrates Kraido,Montfaucon,Angella Faith Lapukeni)
7. Forced Migration, Social Cohesion and Conflict: The 2015 Refugee Inflow in Germany (Albarosa,Emanuele,Elsner,Benjamin)
8. Labor Market Integration, Local Conditions and Inequalities : Evidence from Refugees in Switzerland (Müller,Tobias,Pannatier,Pia,Viarengo,Martina Giorgia)
9. Nature-Related Financial Risks in Brazil
10. Exploring the Urban Model : Employment, Housing, and Infrastructure (Sturm,Daniel Marbod,Takeda,Kohei,Venables,Anthony J.)
11. Nonclassical Measurement Error and Farmers’ Response to Information Reveal Behavioral Anomalies (Abay,Kibrom A.,Barrett,Christopher B.,Kilic,Talip,Moylan,Heather G.,Ilukor,John,Vundru,Wilbert Drazi)
12. Surveying Informal Businesses : Methodology and Applications  (Aga,Gemechu A.,Francis,David C.,Jolevski,Filip,Rodriguez Meza,Jorge Luis,Wimpey,Joshua Seth)
13. The Effects of Subsidizing Social Security Contributions : Job creation or Informality Reduction (Aşık,Güneş,Bossavie,Laurent Loic Yves,Kluve,Jochen,Nas Ozen,Selin Efsan,Nebiler,Metin,Oviedo Silva,Ana Maria)