12.03.2020 | IER
Karthik Reddy, Moritz Schularick, and Vasiliki Skreta published their paper "Immunity" in the International Economic Review.
Abstract: Legal provisions that protect elected politicians from prosecution have been common throughout history and still exist in most democracies. We provide the first systematic measurement of immunity and study, theoretically and empirically, its relation to corruption. Theory predicts that immunity is a double‐edged sword. To test whether immunity is a vice or a virtue, we quantify immunity enjoyed by heads of government, ministers, and legislators in 90 countries. Controlling for standard determinants of corruption, we find that stronger immunity is associated with greater corruption. Instrumental variable estimations using immunity at the first democratic constitution suggest the effect could be causal.
02.01.2020 | ReStud
Òscar Jordà, Björn Richter, Moritz Schularick, and Alan M. Taylor published their paper "The effects of quasi-random monetary experiments" in the Journal of Monetary Economics.
Abstract: What is the relationship between bank capital, the risk of a financial crisis, and its severity? This article introduces the first comprehensive analysis of the long-run evolution of the capital structure of modern banking using newly constructed data for banks’ balance sheets in 17 countries since 1870. In addition to establishing stylized facts on the changing funding mix of banks, we study the nexus between capital structure and financial instability. We find no association between higher capital and lower risk of banking crisis. However, economies with better capitalized banking systems recover faster from financial crises as credit begins to flow back more readily.
01.02.2020 | EER
Liang Bai and Lingwei Wu published their paper "Political movement and trust formation: Evidence from the Cultural Revolution (1966-76) in the European Economic Review.
Abstract: This paper examines the effect of political movement on trust formation, in the context of China’s Cultural Revolution (1966–76), an episode that involved conflicts and non-cooperative behavior under moral dilemmas. Combining both county-level variation in revolutionary intensity and cohort-level variation in trust formation ages, we construct individual exposure to the revolution using a difference-in-differences strategy. Our findings indicate that individuals in counties with higher revolutionary intensity and of trust formation cohorts report significantly lower levels of trust more than three decades later. This effect is more pronounced for those more likely to have been targeted during the revolution as well as those with greater exposure to its early years (1966–71). The results are robust after accounting for the dynamic effects of pre-revolution socio-economic characteristics, an extensive set of region-specific cohort trends, placebo tests, and potential reporting bias.