nep-tra New Economics Papers
on Transition Economics
Issue of 2023‒06‒12
eight papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. Consumption and tax gains attributable to Covid-19 vaccinations in 12 EU countries with low vaccination rates By Cylus, Jonathan; Walters, Jessica; McKee, Martin; Cowley, Peter
  2. Impacts of the Russia-Ukraine War price shocks on the Bangladesh economy: A general equilibrium analysis By Chowdhury, Tahreen Tahrima; Dorosh, Paul A.; Islam, Rizwana; Pradesha, Angga
  3. Agricultural Policy in Ukraine By Oleg Nivievskyi; Pavlo Martyshev; Sergiy Kvasha
  4. Loss Aversion, Neo-imperial Frames and Territorial Expansion: Using Prospect Theory to Examine the Annexation of Crimea By Marandici, Ion
  5. Energy, Greenhouse Gas Emissions and Climate Policies – Austria and Poland Compared By Daniela Kletzan-Slamanig; Claudia Kettner
  6. The Economic Complexity of Kazakhstan: A Roadmap for Sustainable and Inclusive Growth By Clement Brenot; Douglas Barrios; Eric S. M. Protzer; Nikita Taniparti; Ricardo Hausmann; Sophia Henn
  7. On the Economic Mechanics of Warfare By Guillaume Vandenbroucke
  8. Schumpeter meets goldilocks: the scarring effects of firm destruction By Beatriz González; Enrique Moral-Benito; Isabel Soler

  1. By: Cylus, Jonathan; Walters, Jessica; McKee, Martin; Cowley, Peter
    Abstract: BACKGROUND: The Covid-19 pandemic is an economic and a health crisis. Households reduced consumption expenditures as large-scale physical distancing measures, lower disposable incomes and fear of infection when engaging in many types of economic activity took hold. This, in turn, reduced domestic tax revenues at a time when governments were facing increased financial pressures to strengthen and sustain welfare states. METHODS: We developed a simulation model, the Covid-19 Taxination Simulator, to estimate potential economic gains and tax revenues attributable to vaccine rollouts. We apply the model to 12 European Union countries which had low vaccination rates at the beginning of 2022. RESULTS: The highest growth in aggregate personal consumption expenditure attributable to Covid-19 vaccines administered as of January 2022 is in Greece (10.8%), Slovenia (8.6%) and Czechia (8.6%), while the lowest is in Bulgaria (2.2%) and Slovakia (2.1%). If countries had vaccinated 85% of their adult population, the largest gains in consumption tax revenues would be expected in Romania (830 million Euros) and Poland (738 million Euros). Consumption tax revenues generated by meeting the 85% of the adult population target would, on their own, be large enough to fully cover the costs of expanding the vaccine rollout itself in Estonia, Latvia, Slovenia, Croatia, Czechia, Hungary and Greece. CONCLUSION: Covid-19 vaccination rollouts not only save lives and relieve pressures on health systems, they also support economic growth and generate additional tax revenues. These revenues can partially offset the costs of vaccines programmes themselves.
    Keywords: Covid-19; coronavirus
    JEL: E6
    Date: 2023–04–01
  2. By: Chowdhury, Tahreen Tahrima; Dorosh, Paul A.; Islam, Rizwana; Pradesha, Angga
    Abstract: The spike in global commodity prices caused by the Russia-Ukraine war has had major adverse impacts on many developing countries, including Bangladesh, that still depend heavily on energy and food imports. Although the Bangladesh economy has rebounded after the COVID-19 pandemic, the latest global trade shock has threated to increase food insecurity and poverty. This study utilizes the Bangladesh RIAPA economywide model to assess the impact of increases in global commodity prices and explores potential policy interventions to reduce negative impacts. Simulation results show that increases in international commodity prices create a GDP loss of 0.36 percent and an increase of three million in the number of poor (mainly rural poor). Energy price shocks account for most of this decline in real GDP (0.28 percent). The fertilizer subsidy helps spur agriculture production which leads to an increase in crop GDP by 0.78 percent and total agricultural GDP by 0.43 percent. Changes in policy could help mitigate the effects of these price shocks. In particular, petroleum subsidies would help increase production in both agriculture and services, leading to a 0.3 percent increase in household consumption, considerably more than the gain under a targeted cash transfer policy of equal cost. However, given that the petroleum subsidy does not specifically target the poor, it only reduces poverty by a fraction of what a targeted cash transfer would. Moreover, as illustrated by the experiences of other countries, increases in a fuel subsidy, once introduced, are likely to be very difficult to reverse. This suggests that if the major policy goal is to reduce poverty, a direct cash transfer would be more effective than the other policy options considered here. Combining these policies, however, would be even more effective than any single intervention, reducing poverty incidence by around 2.5 million people, and thereby preventing nearly all of the potential increase in poverty resulting from global price shocks.
    Keywords: BANGLADESH; SOUTH ASIA; ASIA; commodities; prices; developing countries; economics; shocks; food insecurity; poverty; policy intervention; gross domestic product; agricultural production; household consumption; subsidies; fuels; cash transfers; general equilibrium model; Russia-Ukraine War; global price
    Date: 2023
  3. By: Oleg Nivievskyi; Pavlo Martyshev; Sergiy Kvasha
    Abstract: Building upon the theory and methodology of agricultural policy developed in the previous chapter, in Chapter 2 we analyse and assess agricultural policy making in Ukraine since the breakup of Soviet Union till today. Going from top down to the bottom, we begin by describing the evolution of state policy in the agri-food sector. In the beginning, we describe the major milestones of agricultural policy making since independence, paving the way to the political economy of the modern agricultural policy in Ukraine. Then we describe the role of agri-food sector in the national economy as well as globally in ensuring food security in the world. After, we dig deeper and focus on a detailed performance of agricultural sector by looking at farm structures, their land use, overall and sector-wise untapped productivity potential. Modern agricultural policy and institutional set-up is contained and analyzed in details in the section 2.4. A review of the agricultural up- and downstream sectors wraps up this chapter
    Date: 2023–04
  4. By: Marandici, Ion
    Abstract: Why did Russia’s authoritarian leader decide to annex Crimea? Why was Ukraine unable to resist the Russian aggression? This study relies on prospect theory to illuminate the decision-making in Moscow and Kyiv that led to the takeover of Crimea. First, I identify the turning points of the Euromaidan crisis preceding the annexation and trace how Putin’s assessment of the status quo shifted repeatedly between the domains of losses and gains. In the domain of losses, the Russian leader, influenced by a neo-imperial faction within the Presidential Administration, became more risk acceptant, annexed the peninsula, and escalated the hybrid warfare. Putin framed the intervention using nationalist themes, drawing on salient historical analogies from the past. Second, new documentary evidence such as the minutes of Ukraine’s National Defence and Security Council (NDSC) and participant testimonies reveals that the decision-makers in Kyiv could not mount an effective defence due to squabbles among coalition partners, the breakdown of the military chain of command in Crimea, the looming threat of a full-scale invasion from the East, and the inflated expectations regarding the West’s capacity to deter Russia’s aggression. Third, the article relies on prospect theory to explain why after Crimea’s annexation, Putin refrained from continuing the territorial expansion deeper into Ukraine, opting instead to back secessionism in Donbas. This account highlights the explanatory power of prospect theory compared to alternative frameworks, pointing out, at the same time, the need to incorporate causal mechanisms from competing theoretical traditions in studies of foreign policy decision-making.
    Keywords: Russia; Crimea annexation; Ukraine; hybrid warfare; prospect theory; groupthink; foreign policy analysis; decision-making under risk
    JEL: B4 B40 D72 D74 D81
    Date: 2022–01–31
  5. By: Daniela Kletzan-Slamanig (WIFO); Claudia Kettner
    Abstract: For the project "Social Aspects of Market-Based Instruments for Greenhouse Gas Emission Reductions – SoMBI" Austria and Poland were chosen as case study countries to compare the impacts of an EU-wide carbon price combined with different revenue recycling policies. The detailed analysis will focus on the macroeconomic and greenhouse gas emission effects of the introduction of the carbon pricing and revenue recycling schemes as well as the distributional effects of such price mechanisms for different household types. The two countries were chosen as they differ considerably in terms of their energy systems and economic conditions. Further differences regard the level of ambition of the respective domestic climate policies as well as the priorities set in energy policies. The aim of this paper is to provide indications of the sectors that are emission-intensive and/or labour-intensive and are likely to gain or lose from the chosen revenue recycling mechanisms. Moreover, the findings will provide background information for the interpretation of modelling results for the various carbon pricing and recycling options.
    Date: 2023–05–19
  6. By: Clement Brenot (Center for International Development at Harvard University); Douglas Barrios (Center for International Development at Harvard University); Eric S. M. Protzer (Center for Global Development); Nikita Taniparti (Center for International Development at Harvard University); Ricardo Hausmann (Center for International Development at Harvard University); Sophia Henn (Center for International Development at Harvard University)
    Abstract: Since the end of the 1990s, Kazakhstan has relied on oil and gas as the main drivers of economic growth. While this has led to rapid development of the country, especially during years of high oil prices, it has also subjected the economy to more severe downturns during oil shocks, bouts of currency overvaluation, and procyclicality in growth and public spending. Stronger economic diversification has the potential to drive a new era of sustainable growth by supporting new sources of value added and export revenue, creating new and better jobs, and making the economy more resistant to fluctuations in oil dynamics. However, repeated efforts to stimulate alternative, non-oil engines of growth have so far been inconclusive. This report introduces a new framework to identify opportunities for economic diversification in Kazakhstan. This framework attempts to improve upon previous methods, notably by building country and region-specific challenges to the development of the non-oil economy directly into the framework to identify feasible and attractive opportunities. These challenges are presented in detail in the Growth Diagnostic of Kazakhstan and are summarized along three high-level constraints: (i) an uneven economic playing field dominated by government-related public and private-entities; (ii) difficulties in acquiring productive capabilities, agglomerating them locally, and accessing export markets; and (iii) ongoing macroeconomic factors lowering external competitiveness lower and making the economy less stable. Our approach applies the economic complexity paradigm to identify what specific products and industries are most feasible for diversification, based on the existing productive capabilities demonstrated in the economy. We examine Kazakhstan's economic complexity at the national but also subnational levels, highlighting the heterogeneity of export baskets across regions that makes an analysis of opportunities at the subnational level essential.
    Keywords: Economic Complexity, Kazakhstan
    Date: 2023–02
  7. By: Guillaume Vandenbroucke
    Abstract: A large literature is concerned with the consequences of war-related expenditures and how to finance them. Yet, there is little by way of understanding how expenditures affect the outcomes of wars, e.g., prevailing side, duration, or total destruction. I present a model of attrition in which I characterize the effects of resources on the outcomes of war for a military conclusion (when one side cannot fight anymore) and a political conclusion (when one side does not want to fight anymore). I discuss the role of GDP for both types of conclusions. I also analyze the mechanics of third-party support to a small country at war with a large one, e.g., Ukraine and Russia. Finally, I show that the model can fit actual battle data.
    Keywords: war; attrition; military spending
    JEL: E6 H56 N4
    Date: 2023–04
  8. By: Beatriz González (Banco de España); Enrique Moral-Benito (Banco de España); Isabel Soler (Banco de España)
    Abstract: The COVID-19 shock impacted firms severely all over the world. Governments were swift to implement policy measures to aid these firms, but these are coming to an end in the midst of a highly uncertain macroeconomic environment as a result of the war in Ukraine and the surge in energy prices. In this context, policymakers are worried about the potential increase in firm destruction after support policies are lifted, and what its macroeconomic consequences could be. Using data for Spain, we uncover an inverted U-shaped relationship between firm destruction and total factor productivity (TFP) growth: at low levels of firm exit, Schumpeterian cleansing effects dominate and the effect of firm destruction on TFP is positive, but when exit rates are very high, this effect turns negative. In order to rationalize this finding, we build on Asturias et al. (2017) and develop a model of firm dynamics with exit spillovers calibrated to match the non-linearity found in the data. This reduced-form spillover captures amplification effects from very high destruction rates that might force viable firms to exit, for example, due to disruptions in the production network and a generalised contraction in credit supply. Armed with the calibrated model, we perform counterfactual scenarios depending on the severity of the shock to firm exit. We find that when the shock is mild and firm destruction rates upon impact are similar to those observed during the Global Financial Crisis (GFC), TFP growth increases, and the recovery is faster. However, when the shock is severe and firm exit is well above that of the GFC, TFP growth decreases, since high efficiency firms are forced out of the market, which makes the recovery much slower. Overall, our results point to the importance of keeping exit rates low to avoid long term scarring effects.
    Keywords: firm exit, productivity
    JEL: E22 G33 M21 O47
    Date: 2022–08

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