Nova workboard

a blog from young economists at Nova SBE


2016 European films: poverty and its leading role

i daniel blakeFigure 1- “I, Daniel Blake”(2016), Drama film

Independent European films have been voicing a myriad of social problems that follow the tone of EU’s political agenda. In 2016, poverty plays a prominent performance in most of them, extending its role from setting towards the storyline of the characters. “I, Daniel Blake” is heart-rending film about a man of 55 years old that after having been employed most of his life in England, suffers an illness that restrains him form work. For the first-time Daniel Blake needs income support from the State, and he is on the Kafkian welfare bureaucracy played out against the discourse of “striver and skiver” that is now part of political debate in several European countries. “I, Daniel Blake” was nominated for several awards, and it was the winner of the Cannes 2016 top filmmaking prize, the Palme d’Or. Furthermore, “Sao Jorge” is a 2016 fierce Portuguese film on European troika bailout measures in Portugal after the 2008 world financial crisis. This film raises awareness about the effect of the 2008 crisis on unemployment, social instability, and at-work poverty. The bottom line is the following: is poverty in Europe only an artistic trend in film industry or also a striking reality check?

Eurostat figures suggest that the 2008 financial crisis had a substantial impact on poverty indicators across Europe. According to this agency, the number of people at risk of poverty or social exclusion in the EU grew from with about 114.5 million in the EU-27 in 2009 to about 122.5 million people at risk in the EU-27 in 2012. The following graph shows that despite the pre-crisis years represented a period of catch-up in poverty figures, this trend was significantly reversed when the financial crisis hit EU members in 2010.

People_at_risk_of_poverty_or_social_exclusion,_EU-27_and_EU-28,_2005-14

Figure 2 – People at risk of poverty or social exclusion, EU-27 and EU-28, 2005-14, Source: Eurostat

In spite of the subtle improvement in poverty figures between 2012 and 2014, a little over 122 million people — 24.1 % of the EU populationwere still at risk of poverty or social exclusion in 2014, on the report of Eurostat. In other words, nearly one in four people in the EU came across at least one of the three forms of poverty – monetary poverty, material deprivation, or low work intensity – or social exclusion.

One should point that Europe’s recession did not impact EU member states alike. In the immediate years that followed the financial crisis, from 2008 to 2011, poverty increased almost all member states. The largest increases were in Greece, Latvia, Lithuania and Ireland. However, between 2011 and 2013, the crisis’ impact across European countries is less homogeneous. While ten EU member states registered slight reductions in poverty indicators, Greece, Portugal, Spain, manifested a steady rise in poverty figures. Figure 2 depicts the change in poverty statistics from 2008 to 2014 across EU member states.

 

People_at_risk_of_poverty_or_social_exclusion,_by_country,_2008_and_2014

Figure 3 – People at risk of poverty or social exclusion, by country, 2008 and 2014

 

Additional evidence of the effect of the crisis in European countries’ poverty levels is provided by economic research.  Hick (2016) analysed the impact of 2008 financial crisis on European levels of material poverty and multiple deprivation. The author concludes that in 2013 Greece, Italy, Cyprus, Spain and Portugal combined together exhibited higher levels of poverty and deprivation than the average of Slovenia, Slovakia, Czech Republic, Poland and Hungary by the time they joined the European Union in 2004.

The analysis of poverty figures for the after-crisis years in EU member states seems to suggest that the film industry’s interest in poverty in 2016 is more than just an artistic trend or an intellectual mania. In fact, it appears that the film industry has tried to give a face to the 24.1 % of the EU population that were at risk of poverty or social exclusion in 2014.  Perhaps audiences will assume that these plots are fiction and propaganda. But as Bertolt Brecht stated: “Art is not a mirror held up to reality but a hammer with which to shape it”.

 

Mónica Barreiros


Down from the glitter angle.

When most of us think of gay people, the association with rich Caucasian individuals living by the opulent streams of a given township, wearing designed strained clothes, shopping around high-end boutiques or just standing by with lavish appetizers is almost immediate. The hazardous belief that gays and lesbians are one of the wealthiest demographics in one country (“The Myth of Gay Affluence”) is far from being a new cliché. Its influence over institutions is portrayed in several milestone LGBT[1] court cases such as the 1996’s US Romer v. Evans, where Justice Antonin Scalia proclaimed “those who engage in homosexual conduct (…) to have high disposable income and (…) possess political power much over their numbers”.

A five minutes search over the web is enough to confirm general interest to lie on the top level of income distribution over the gay community, with the “Gay wage premium” ranking first across all sort of articles. Yet, when it comes down to the bottom end, the bulk of research reveals to be scarce.

 Shortage on research over poverty at LGBT communities lies from the fact that these were invisible in most surveys. Large surveys usually report questions about marital status, ethnicity, race and many other factors which potentiate exposure to economic hardship, but not on one’s sexual orientation. The created statistical gap has been trimmed in recent years, especially in the US, following efforts to collect data allowing for sexual orientation stratification of individuals and households.

Contrary to the common belief, a landmark report by The Williams Institute revealed the LGB[2] reality to be less sparkling. Using US data, the research team found that 24% of lesbians and bisexual women were poor, when compared to the lower 19% of heterosexual women. The gap is lower for gay and bisexual when compared to their heterosexual counterparts, with a poverty share of 15% and 13%, respectively. From a twosome perspective, lesbians represent the higher stake for couples living below the poverty line:  6,9% of lesbian couples, 5,4% for different-sex married couples and only 5% for gay male pairs. When determining poverty rates for all members of a family, two adults and children, the poverty rates over lesbian families is roughly 10%, compared to 6,7% for those of different-sex couple families and only 5,5% for those in gay male coupled families. Although the likelihood for gay and lesbian couples to have children in is lower, data exposed children of same-sex couples to be twice as likely to be poor than children of straight married couples. Though strict to US data, the study becomes heavily expressive for the formerly mentioned society’s distorted perception.

Several field experiments were already performed and might help to assess the nature of poverty across LGBT communities. A 2011 study from the University of Chicago found gay applicants to be 40 percent less likely to be granted an interview when compared to  equally qualified heterosexual counterparts. Following the same premise, Doris Weichselbaumer  reports an indicator for lesbian orientation to reduce the probability to be invited to an interview in roughly 12-13% when compared to a non-homosexual equivalent female. Employment discrimination is also observed across transgender people, with the Human Rights Campaign findings revealing 20 to 57 percent of surveyed trangenders acknowledging to have experienced both high barriers to entry the labor market and also employment discrimination, including being fired, denied a promotion or being harassed.

Though labor market discrimination may be attributed itself as the major cause for the former results, evidence shows experiences with discrimination and stigmatization of men and women with same-sexual stories to result in higher propensity to depression, drug and alcohol dependence and higher rates of development of psychiatric disorders,  when compared to exclusively heterosexual fellows.

There is for sure room for policy action to detract negative effects of sexual orientation discrimination. Enforcing currently existing (or enactment of) laws of anti-sexuality discrimination and allowing same-sex marriage may take place as a major first step. But dismissing leaky premises, such as the Gay Affluence one, will be the real struggle. As long as these prevail, we will continue to think about gay people from the flamboyant perspective, agreeing LGBT community not to economically strive like the rest of the population. We will continue to watch gay couples living upstream lives like we have seen so far. Or at least those we are used to see on the TV, like that of Mitchell and Cameron from a “Modern Family”.

Vítor Pereira Santos.

 

[1]Abbreviation for Lesbian, Gay, Bisexual and Transgender

[2] The lower level of data for sampling on Transgender prevented the team to include the latter on the study.


EXPLORING THE CONDITIONAL NATURE OF CONDITIONAL CASH TRANSFER PROGRAMES

Anti-poverty policies across the world have taken different shapes, from the implementation of a minimum national wage to the application of progressive taxes, specially in developed countries. However, when considering the strategies disseminated in emerging economies, the policies sometimes diverge: a noticeable and controversial policy that has been implemented throughout Latin America and Asia is the Conditional Cash Transference Program (CCT).

The CCTs are welfare programs conditional on the recipient’s compliance with a set of criteria defined by the government, that ranges from school attendance in the case of Bolsa Familia in Brazil to the participation in the vaccination process in the case of the Pantawid Pamilyang Pilipino Program in the Philipines. The aim of these criteria is to increase the human capital of children with the goal of reducing the transmission of poverty from one generation to the next.

However, CCTs have receive widespread criticism due to the difficulty in making them cost efficient and having them reach the target population correctly without leaking to higher-income groups (Perkins et al, 2013).

The arguments for conditionality are straightforward and can be made both from a public and private perspective, as presented in the paper by Braw and Hoddinott (2010): the government may think they know what is better for the poor better than the poor know themselves and by providing these transfers they will be more capable to modify behavior. Another argument from a public perspective is more political in the sense that taxpayers may be more likely to support these transfers if they have a conditional link to improving the welfare of children, either through education or healthcare (Fiszbein and Schady, 2009). From a private perspective, the conditional factor may resolve household disagreements regarding the allocation of resources and from a behavioral economics perspective, a study by Laibson (1997) shows that households with hyperbolic functions, undertake actions that can reduce their own welfare which makes these programs more effective if conditional.

On the other side, there are arguments against the conditional nature of these transfers, the strongest one is made from a human rights perspective: social protection is part of the Universal Declaration of Human Rights and therefore, there should not be a set of conditions attached to these transfers (Freelander, 2007). Other arguments may be related to the potential corruption of individuals who need to certify these conditions but also the paternalistic view that poor people do not know how to make decisions from themselves is rather questionable. From a financial standpoint, the administrative cost of monitoring these programs increases on average 2% of the total cost of these programs (Caldes et al., 2006)

Thus, the question arises regarding the need to make transfers conditional in order for them to work. Braw and and Hoddinott (2010) analyzed the conditionality aspect of the CCT program in Mexico PROGRESA, by assessing the impact of imposing criteria on the school enrollment and therefore evaluating the accumulation of human capital, a key aspect in combating poverty. To assess whether these criteria were relevant, the researches benefited from the fact that some PROGRESA beneficiaries did not receive the papers required to monitor the children’s school attendance. The result of their research allowed them to reach the following conclusions: on average, the lack of these monitoring capacities increased the probability of children skipping school. There is an argument for conditionality: in fact, the research shows that there are extensive benefits from conditioning, specially at a lower secondary level when compared to primary level (in which, children are becoming increasingly enrolled, regardless of these incentives). These results are aligned with prior research conducted by de Janvry and Sadoulet (2006).

The conditionality of CCTs has been debated for its humanitarian aspect as well as its need to make the program work. Critics seem to believe that given monetary incentives, families would choose to enroll children in school, regardless of this being conditional to receive the government support. Despite the administrative cost associated with monitoring conditionality, research shows that there are large benefits associated with this aspect of the program when analyzing student enrollment. Incentivizing families to enroll children in schools will lead to the accumulation of human capital and may work as a tool for combating poverty.


Bolsa Familìa and the power of education

Extreme poverty and strong inequality have always mould Brazilian society restraining complete economic and social development. Being aware and willing to face these issues, Brazilian politicians have questioned how to improve life and condition of indigent and deprived families.

The Government started from 1980 to distribute “cesta bàsicas”, i.e. baskets of food, to the most needy families to fight poverty by direct assistance; however the program was fragile and improvements were necessary.  In 1995, Brazil benefited from a social program Rede de Proteçao Social aimed at fostering household social development, not only in the short run, but also operating progressively to improve social conditions of future generations by enhancing human capital. Following this track, Bolsa Familìa program was implemented  in 2004 by President Lula and it has being considered as the  most important Brazilian social policies and the largest anti-poverty scheme based on conditional direct cash transfer in the world according to The Economist; despite its size, the program cost less than 0.5% of Brazilian GPD.

With the aim of allowing households to overstep Brazilian poverty line, Bolsa Familìa is a means-tested benefit targeted either to extreme poverty families with monthly income per capita lower than 77R$, either to poor families, with monthly income between R$ 77,01 e R$ 154,00 with children between 0 and 17 years old. Families could have access to the program by committing themselves to enrol their children at school and guarantee 85% attendance rate for students between 6 and 15 years old and 75% for those between 16 and 17.

The program mission is fight hunger and promote nutritional and food security, eradicate poverty and any other form of household deprivation and finally promote access to public services: health, education and social assistance. Furthermore, being aware that the main reasons of low children enrolment and school attendance rate in Brazil are lack of interest (50.5%), need to work and generate income(35%) and the difficulty of access to school (13%),  the program conditionality has been addresses to tackle this specific issues. Indeed,  children’s  attendance is the guarantee for income transfer and families started to discourage drop-outs and presence of children in the labour market. Staying  longer at school would allow citizens to reach higher levels of education and to have access to better paid jobs; at the same time easier access to education would generate positive externality on low-education individuals.  It was inded the case as there was a change in both demand for education and labour supply decisions and education started to be perceived as a vehicle to step over misery and allow social changes.

Traditionally poorest areas have benefited the most from the program as its impact has not being homogenous at macro-regional level, i.e. different results have been produced depending on the economic and social characteristics of the areas involved. For example there are evidences on improvements in Maranhao State’s human development index, being for decades the State with highest illiteracy rate in Brazil. Furthermore, according to the World Bank, push in coverage of basic education changed the marked labour demand: low-skilled labour decreased and the skill premium fell, been statistically significant.

There are some concerns and criticism on the ineffective nature of eradicating inequality by implementing Bolsa Familìa  as  families participating in the program overstep the poverty line just above by a subsistence level, without the means to move up the social ladder. Furthermore, it has been said that the program is a way to maintain an equal status quo and it has led to criticism that it will generate a dependency culture.

Overall, the impact of Bolsa Familìa has been outstanding, leading to an increase of Brazilian per capita income and fostering individual social and economic stability; Brazil experienced reduction in poverty between 2003 and 2008, allowing 19 people to cross the poverty line. The essence of Bolsa Familìa relies on the understating of the importance of  human capital enhancement and the complete trust on education’s power. Bolsa Familìa’s conditionality not only have increased education awareness and demand for it, but above all have transformed the program in a long-term investment in the future, i.e. increasing overall education level in Brazil and increasing human development.

Giulia Caivano


Poverty Perceptions in Portugal

Poverty represents a deprivation of the basic right of individuals to fully participate in the social, economic, cultural and political life of their communities. It is often defined in absolute terms of low income (eg: less than US$2 a day) but, in reality, the consequences exist on a relative scale.

According to the United Nations Development Program, Portugal ranks 41 for human development and is considered to have very high development. Despite that, Portugal has one of the most unequal income distributions in Europe and poverty levels are high. These differences across the Portuguese population were accentuated by the recession, which caused a steep rise in unemployment and a decline in disposable incomes. In 2011, the austerity measures that were applied harmed severely those in need of public support, with a decreased spending on education and family support programs.

The at-risk-of-poverty rate is the share of people whose total household income (after social transfers, tax and other deductions) that is available for spending or saving is below the at-risk-of-poverty threshold, which is set at 60 % of the national median equivalised disposable income after social transfers. In 2016, Eurostat estimated the Portuguese at-risk-of-poverty rate to be 26,6% (estimate that is above the European average, established to be 23,7%). This rate revealed to be more accentuated on women, on households with children and on unemployed people, giving some insights on those who are representative of the groups at risk.

In 2009, the Portuguese Amnesty International, partnering with the European Anti-Poverty Network (EAPN) and the SOCIUS / ISEG – UTL Investigation Centre, conducted a study on the perceptions of the Portuguese about poverty and social exclusion in their home country. Comparing these results with those raised by EAPN in 2004, it was possible to verify that there was an increased perception of poverty in Portugal and low expectations regarding improvements in this topic. Not only that, the perceived vulnerable groups to poverty have changed: from disabled, chronic patients, large families and at-risk groups, including drug addicted and alcoholic people (in 2004) to young people looking for their first job, employees with low wages and workers with precarious conditions (in 2009). After analysing these results, the same study has concluded that the perceived causes of poverty are being jumbled with its consequences, being the focus on job-related issues too much skewed.

Keeping in mind the conclusions of the study in what concerns the perceived association between employment and poverty, and knowing that the unemployment rate raised from 9,4%, in 2009 to 11,1% in 2016, how can one forecast Portuguese perceptions on poverty today?

According to INE, in 2016, the unemployment rate affected mainly those under 25 years and those with low educational levels, with a more similar distribution in what concerns gender differences. Assuming that the Portuguese population still consider unemployment as one of the main causes of povert, that would mean that the perception on poor groups would be associated with young people with low educational levels. However, what happens most of the times is that these youngers stay in their parents’ house, not being responsible, not to say able, to afford their living costs. A study from Eurostat shows that the Portuguese young people leave their parents ‘house, on average, with 29 years old (the highest value in the European Union). Following the mentioned assumptions, this means that the economic pressure is put over the parents, being these the ones part of the new at-risk groups.

To create awareness to this new type of poverty, it is important that the Media include this population when referring to poverty situations. Currently, the Media reinforces poverty with images showing homeless people and other extreme and miserable forms of living.

Not trying to say that these “more typical” forms of poverty are not representative and important, I believe that the Portuguese should have a wider scope on how is poverty affecting our country, creating new at-risk groups that should not be forgotten when putting politics in place. Combating poverty implies the participation of poor people to fight for their dignity, interests and aspirations. Only in a joint and personalized work there is the possibility of improving people´s self-esteem and strengthening their capacity to build a life project. For that to happen, it is also key to review social benefits (such as RSI: Rendimento Social de Inserção), evaluating the access criteria and monetary transfers values, ensuring the basic needs are satisfied.

Inês Moreira


An Economy for the 1%: challenges and main drivers of inequality

Are the rich getting richer? According to a publication from Credit Suisse, the richest 1% have now more wealth than the rest of the world put together. At the same time, the bottom half of the world population has seen a wealth decrease by a trillion dollars in the past 5 years. These findings suggest that we are currently living in a world where inequality has reached levels as we have not seen for over a century.

Numerically speaking, a study from Oxfam has shown that the richest 62 billionaires have the same amount of wealth as 3.6 billion people – the poorest half of the world’s population. In 2015 this figure was 80; in 2014 it was 85; and as recently as 2010, it was 388. Since 2010, the wealth of the top 62 richest people has increased by 44% – that’s an increase of more than half a trillion dollars ($542bn), to $1.76 trillion. The inequality crisis has gotten out of control.

Economists argue that some inequality is necessary to spur growth. In 1975, the economist Arthur Okun claimed that “a system of rewards and penalties is intended to encourage effort and channel it into socially productive activity”. If this system succeeded it would generate market efficiency, but “society faces a trade-off between equality and efficiency”. Despite most economists still hold this view, the rising economic inequality has made economists take a second look at its costs.

Concentrating wealth among a wealthy elite is bad for all of us. According to an article from The Economist, inequality undermines economic growth if those with low incomes would suffer from poor health, low productivity or struggle to finance investments in education as a result. Inequality can also spur protectionist sentiments, in a way that people will no longer support growth-boosting policies such as free trade if they feel as if they are losing while a small group of winners is getting richer and richer. An article from The Guardian also finds that a 1% increase in the taxable income held by the top 1% hurts life satisfaction of the remaining 99% as much as a 1.4% increase in the unemployment rate. One reason behind this could be that an increase in the wealth of the top 1% could make the rest feel as if their chances of moving up in life are growing increasingly beyond their reach, especially for those who are young, less educated or on low incomes.

But how did we create an economy that, instead of working for the prosperity of everyone, future generations and the planet, we have an economy that has reached tremendous inequality levels and seems to be designed for the top 1%? The report from Oxfam argues that one of the main drivers of this trend is the increasing return to capital versus labor. This means workers are receiving less and less and that the gains from growth are being channeled to capital holders. Tax avoidance by the owners of capital on capital gains has furthered these returns. An OECD report argues that the most important driver has been greater inequality in wages and salaries. This is not a surprising result taking into account that earnings account for, on average, three quarters of a household income in OECD countries. Wages of the top earners have been moving away from middle earners at a faster pace than low earners, resulting in an ever-more squeezing middle-class. Across the global economy, individuals and firms use their power and success to act for their own benefit. To exemplify this, we have tax havens and the industry of tax avoidance, which have emerged over recent decades. Those that should be paying the most tax, because they are the wealthiest, find a way to avoid paying what they owe.

It is time to put a halt on this inequality crisis. Leaders must come together and stand with the majority, incentivizing policy-makers to better regulate the activities of the financial sector and designing schemes that pay living wages to workers and close the gap with executives. There is still room to move to start building an economy that finds its balance between efficiency and equality.

Sara Vaz, Nova School of Business and Economics student


Immigration and Welfare

The use or abuse of the welfare system by immigrants is a hot-button issue at the moment.  From Brexit, to anti-immigrant rhetoric in the Dutch election to the signing of executive orders restricting immigration in the United States, politicians and citizens are making it abundantly clear that they believe immigrants are a drain on the system.  But are these voters uninformed? Are politicians misleading the electorate to stoke fear and resentment?  It seems like the answers to these questions are a mixed bag.  While it is true that immigrants utilize the social security apparatus, it is unclear as to whether they are disproportionately reliant on the system when compared to their native-born counterparts.  Additionally, what should the government do about it? Tito Boesi offers some solutions to the problem in Europe.

This disparity of opinion on the issue of immigrant versus native consumption of welfare is especially prominent in the hyper-partisan political atmosphere present in the United States.  There, varying research institutes come to different conclusions according to their political beliefs.  The Center for Immigration Studies (CIS) finds that immigrant households use the benefits of social security programs more than native households and concludes that there needs to either be immigration or welfare reform.  What the study advocates for is what it calls “building a wall around the welfare state”, which entails limiting immigrants from accessing welfare.  This option is also mentioned in Boesi’s paper, where he talks about “closing the welfare door” as an option for the EU that might allay fears of welfare abuse.  In opposition to this theory, the Cato Institute, another think-tank, criticizes the methodology used in the CIS study, claiming that the use of immigrant households (any household where one family member is an immigrant), as opposed to individuals skews the numbers to make it seem as if immigrants consume more social security. When measured on an individual scale, while also taking income into account, the Cato Institute found that immigrants use less social security than natives do.  It is important to note also, that the US already has policies in place that limit immigrants from accessing welfare benefits and “build a wall around welfare”.  In its critique of the CIS study, the Washington Post points to the fact that laws already exist that do not allow immigrants to utilize social security such as Medicaid for five years after they enter the country.  However, this too is disputed in the divisive culture of the US, as conservative outlets like the National Review decry that there are numerous loopholes to these laws or that they are poorly enforced.  It is clear that in the US at least, this policy needs some sort of overhaul and probably should not be adopted when looking at a designing a European plan.

Another option that Boesi describes is the point system.  This system assigns points to potential immigrants as a way of screening them prior to approving them for immigration.  The points take into account a variety of factors including education and experience, as well as what the country’s labour market might need at that given time.  Each applicant is thus given a score and preference is given to higher scoring applicants.  This system encourages a higher-skilled immigrant population and decreases the likelihood that an immigrant would need to rely on welfare programs.  This points system has been successful in Canada, with the Fraser Institute reporting that the points system has reduced the per-capita transfer amount by almost $700 annually.  The report however does advocate for more extreme requirements for admission, including having a job offer already.  This is in response to the growing number of total immigrants being admitted, which the Institute sees as a problem given that while the per-capita expenditure has gone down, the net burden has increased.

Whatever the policy that countries decide to implement, most economists agree that immigrants offer a net benefit to the economy.  They create more jobs than they take and are overall good for a country.  However, not everyone takes math into account and numbers can be manipulated to support almost any position.  Politics is also increasingly becoming more emotional and the general trend seems to be moving away from the acceptance of immigration.  In this climate it is important to address both the needs of the country and its people, as well as react to global situations in a positive way.


Is Trump protecting U.S. current taxpayers or is he harming the future ones?

On the 23rd day of 2017, the President of the United States of America released two draft executive orders. According to the draft of the first executive order, President Trump aims to protect taxpayer resources by ensuring U.S. immigration laws promote accountability and responsibility, which as he believes had not been ensured by previous administrations. Trump claims that households headed by either legal or illegal aliens¹ are more likely to use Federal means-tested public benefits than those headed by citizens. Therefore, his main intentions with this executive order are to promote immigrant self-sufficiency, to ensure that the United States do not welcome individuals who “may become a burden to taxpayers”, and to ensure that the campaign promises about immigration are enforced.

What is in practice supposed to happen? Well firstly, restrictions on access of programs such as SNAP² should be increased. Secondly, a reimbursement from the sponsors³ of immigrants for the Federal means-tested public benefits provided to immigrants should be obtained. Additionally, aliens who have become a public charge⁴ and are receiving “public benefits for which eligibility or amount is determined in any way on the basis of income, resources or financial need” should be deported.

What differs from previous administrations? Before, when deciding on deporting people based on having become a public charge, the Government did not take into account if the person was receiving nutritional, medical or housing benefits, allowing immediate access for families with children under 18 years old, including programs such as SNAP as it is mentioned on the Food and Nutrition Service on the United States Department of Agriculture. With the new executive order, not only many immigrant-headed families out of the 45.3%⁵ who receive food assistance may be restricted from obtaining it, but it would also be a factor to consider when deciding to deport the immigrants based on their perceived excessive dependency from the State.

These measures that are intended to save the jobs and money of the citizens will in fact affect actual citizens. According to data from the one-year ACS file on the Migration Policy Institute, in 2015 there were 17,865,689 children under 18 years old who have one or more foreign-born parents. Of all the children under 18 only 2,093,410 (3%) were not born in the U.S.A. This means that approximately 16 million children under 18 years old are actually U.S. citizens, representing 88% of all children who live with immigrant parents, which is about 1.6 times the whole Portuguese population. Furthermore, more than half of the children under 18 years old who have one or more foreign-born parents (9,363,259 children) are part of low-income families. Therefore, even if the 2,093,410 children who have immigrant parents and that are foreign-born all belonged to low-income families, which is not true, there were still 7,269,849 children (or most likely 7,269,849 future taxpayers) who are U.S. citizens that may suffer from the possible actions of the executive order.

Generally, it is not evident how long it would take to actually implement the actions ordered by the President or that they will be taken exactly as it is written. However, if they eventually are taken precisely as they are intended to, there are lots of current citizens, as it is shown before, who will suffer from it. More precisely, as George J. Borjas argues in an article he wrote, “taking the public charge provisions of immigration law seriously could potentially affect 3.7 million households”.

On the bright side, these restrictions could save the Government billions of dollars. But are all the dollars “saved” really worth the lives of others? And won’t the Government have to spend a lot more with the “others” in the future? Especially, when those others will most likely become dependent citizens if they are not provided with the right support right now as children, facilitating the opportunities for them to have a relatively stable life, in order to be efficient in school and consequently in their future jobs, allowing them to positively impact their society, and ultimately the “Greatest Nation in the World”?

¹Individuals who are not U.S. citizens or U.S. nationals.

²SNAP stands for Supplemental Nutrition Assistance Program, which was previously named the Food Stamp program that provides low-income individuals and families with assistance to purchase food.

³According to the Official Website of the Department of Homeland Security, the term “sponsor” often means to bring to the United States or “petition for”. Generally, relatives are the sponsors of the immigrants.

⁴ A person who is dependent on government benefits and assistance programs.

⁵According to a recent analysis by the National Academies of Sciences.

 

Mariana Forbes Costa


Why Grocery Stores are NOT Eliminating Food Deserts

 

Food deserts– a term that represents geographical areas that do not access to fresh, healthy foods due to the lack of supermarkets within travel distance.

For many years, it has been understood that there is a causal relationship between availability of healthy food options and poverty. Wealthy areas have three times as many supermarkets as poor neighbourhoods and thus, low-income communities are limited by the amount of food choices they have and what they can afford. The US Department of Agriculture finds that there around 30 million people living in welfare that are more than a mile away from their closest grocery store, who have an annual income of $5,000 to $20,000. Food retailers tend to avoid these areas due to the unattractive return on investment and high development costs. As a result, these food deserts contain numerous convenient stores and fastfooddesert food options (see picture on the right) that sell foods that are high in salt, fat, and sugar, resulting in malnourishment, diabetes, and many other illnesses. People who are limited to these options consume around 200 more calories per meal and gain 6 more pounds per year. As a result, poor communities are at high risk of these diseases and are unable to break free of this cycle.

Hundreds of categorical programs have been developed to help combat this food desert problem through the use of cash and in-kind transfers. For an example in city of Baltimore, The Aetna foundation, The United Way, and The Wal-Mart Foundation drop off online grocery orders at a central point in the city that is paid for by the Baltimore health department. The state of Ohio provides cash incentives to grocery stores that are built in poorer communities. Additionally, subsidies and coupons are given to people in welfare communities to purchase fresh produce for less.

However, I would like to argue that increasing access and convenience of grocery stores with fresh food does not and will not change people’s consumption habits. A study in Philadelphia was conducted to measure the impact that a new supermarket had on purchasing behaviour. The result? They found that despite the fact that people knew about the easier access to fresh produce, there were no changes in their consumption patterns. An article by the Atlantic writes, “When it comes to nutrition access, the focus should be on poverty, not grocery store location”. The article argues that bad diets are not attributed to the external environment but a result of the collapse of income on the poor combined with the poor education of healthy foods. A 2017 report done by the North Caroline State University found that the biggest variable that limits an adequate diet is financial resources rather than proximity to healthy foods. Studies in the past have focused on the actual food desert rather than the people that live in these areas. As they began to focus on the people, they realized that even though they lived far away from a supermarket and did not have access to a car, they still made the effort to travel outside the neighbourhood to shop at supermarkets with lower price tags. This results in infrequent grocery trips meaning that fresh produce is not purchased and consumed often due to its easy expiry. Therefore, the sole solution should no longer be about building grocery stores, as that proves to have a non-sizeable impact on consumption behaviours. Food deserts are much more complex problems as factors like low wages, education, preparation of meals, and high cost of ingredients are also significant attributors to this problem.

As a result, I believe that there needs to be a combination of solutions that produce a synergistic effect in changing consumption behaviours. Building supermarkets is great, but it will not accomplish anything without other complimentary initiatives. PBS states that the rest of the solution involves developing effective policies for economic initiatives, such as taxes or subsidies for healthy foods. There must also be in-store marketing techniques to promote the purchase of healthy foods, as awareness is the first step to behavioural change. Additionally, they must develop health education programs to teach the skills needed to buy and cook healthy foods as these skills will effectively translate to making better in-store decisions. Access to healthy foods is only half the battle; the other half must be executed in conjunction with the first in order to make an impactful difference.

 

 


President Trump’s Draft Order Targeting Immigrants on Welfare could be a Grave Mistake

On January 31st 2017 a draft of one of President Trump’s executive orders concerning immigrant access to needs-based assistance was leaked. Trump’s rationale is that immigrants arrive in the United States without the means to support themselves, and consequently burden American taxpayers through the use of social programs. According to Jannell Ross, writer for the Washington Post, this draft directs the government to do the following:

  • Identify and prohibit potential immigrants who will likely require public aid and deport current immigrant residences who use public aid
  • Determine the potential federal savings by limiting immigrant access
  • Claim reimbursement from citizens who promised to support their immigrant relatives
  • Mandate that social services report immigrant recipients to federal authorities

The rules regulating immigrant access to welfare are already quite stringent. A person is considered a “public charge” if he/she is likely to become primarily dependent on government services for support. In 1996, President Clinton instituted welfare reform that barred immigrants from receiving welfare within their first 5 years. Since Clinton’s presidency, these rules have lessened slightly and given limited allowances for access to certain public services on a means-tested basis. Trump’s order threatens progress made for immigrant rights to access welfare.

The premise for this order is predicated on the idea that immigrants cannot support themselves, use an exorbitant amount of public aid, and cost the American public billions in taxpayer dollars. Whether or not immigrants actually use more public aid than natives is still a point of contention. In order to present both sides of the argument, I will concede that according to the National Academies of Sciences 58.2% of households headed by immigrants receive “any type welfare” as opposed to 41.8% of households headed by natives. However, for specifically cash assistance and housing assistance types of public aid, native headed household usage exceeds immigrant headed household usage 6.3% to 5.5% and 5.3% to 4.2% respectively. Additionally, a report by the Cato Institute found that on an income-adjusted (not absolute) basis, noncitizen immigrants use less welfare than native-born citizens. Alex Nowratesh, immigration policy analyst for the Cato institute, made a compelling point when he said, “when you compare poor immigrants to poor natives, poor immigrants are less likely to use welfare, and when they do, the dollar value of the benefits they use is lower”. Already, eligible noncitizen participation in SNAP (a food stamp program) is lower than that of eligible citizens because they fear deportation. Currently, this fear is unfounded as SNAP is legal for immigrants, but if this order is passed they may actually be at risk.

By banning future immigrants and deporting current ones, Trump may do more harm than good for Americans. A Harvard Business School paper on the Economic Impacts of Immigration concluded that the net benefit of immigrants on aggregate outweigh the net costs. A study conducted in 2000, and cited by the HBS paper, calculated that one immigrant provides a net benefit of $7,400 over his/her lifetime. Educated immigrants actively contribute to the work force and pay more in taxes than they receive in welfare. Additionally the discounted cost of a newborn native child is approximately $80,000 when you account for schooling and publicly covered hospital costs. The average immigrant does not receive nearly this much money through welfare, and is already educated, making it beneficial to admit future immigrants and to not deport current ones.

According to Caitlin Dewey, writer for Washington Post, in the past strict welfare reform has not even been overly beneficial. Following Clinton’s reform, immigrant use of public aid dropped off, but for every 10% reduction in immigrant use of welfare there was a 5% increase in households classified as food insecure. Dewey argues that although American taxpayers may save nearly $19 billion, there will be detrimental fiscal and health long-term effects if individuals cannot gain access to food stamps. Underfed children often develop chronic health conditions and require hospitalization. In 2010 hunger related healthcare cost the U.S healthcare system $130.5 billion. The potential increase in hunger related healthcare costs for immigrants, 21% of whom fall under the poverty line according to the Center for Immigration Studies, would likely make the $19 billion in savings seem negligible. Ultimately, I believe that this executive order will not provide a net benefit to the American economy, rather it will exploit the poor, raise healthcare costs and violate the basic human rights that should be entitled to all people, immigrants included


Affordable Housing in Canada

Affordable housing in Canada is in place to support low-income individuals who are struggling to pay rent in addition to their other daily expenses. It is a necessary program, given the rising number of eligible individuals, growing alongside trends of increasing poverty and housing rent prices. While subsidized housing puts a roof over many Canadian’s heads, it also serves the purpose of increasing citizen’s well-being, safety, and health, and allows them to be contributing members of society.

There are a variety of conditions that ensure that those who receive affordable housing are actually in need. These include residency requirements, situations such as senior citizenship,  supporting dependents, having a disability, or being at risk of homelessness, income levels, and more. However, many of those who are in need are not receiving it. Demand continues to grow, while subsidies have continued to decrease to date.

Canada has seen a shortage of affordable housing for many years. According to CPJ, this low supply has been met with increasing demand from low-income individuals and families, putting a strain on government policies. One major contributor to this strain is record-low rental property vacancies across the country. Since it is often less lucrative for developers to build rental housing, they are focusing more on properties for the ownership market. As a result of the supply-demand gap, rent prices have been slowly increasing, which ultimately has pushed increasing numbers of renters to not be able to afford their current rents, sending them looking for subsidized housing. According to the Liberal website, about 25% of Canadian households is paying rent that exceeds their budgets or abilities, and “one in eight cannot find affordable housing that is safe, suitable, and well maintained”.

Unfortunately, obtaining subsidized housing is not as easy as one would expect. Waiting lines can often exceed up to 5 years if an individual is living on their own and not supporting children or elderly. An article in the Globe and Mail stated that “in Ontario alone, 171,360 households are waiting for rent-geared-to-income housing, according to the most recent data released by the Ontario Non-Profit Housing Association.” Actions must be taken at all levels of government in Canada; federal, provincial, and municipal policies need to take into account the shortages and work together to mitigate the problem.  Municipalities are pushing for Ottawa to fund half of all major building projects in the country, with provinces covering one-third and municipalities paying the rest.

The Greater Vancouver Area is a prime example of a city in need of significantly more affordable housing. First, the area is experiencing far-too-high levels of homelessness; according to the Vancouver Sun, the homelessness count conducted this year found a dramatic increase across the metropolitan area. This is a result of continually rising house prices, as the benchmark price for a detached property in Greater Vancouver rose above the $1.5 million benchmark. Simultaneously, thousands of Federal Housing subsidy agreements have been coming to an end for the past couple of years, and the NIMBY factor (objecting to public benefit developments) is playing a role in inhibiting new projects. The combination of these is pushing more people to the streets, exhibited by the tent cities of homeless people forming around the city. With this increased number of people taking to the streets, the need for more subsidized housing and other policies grows ever-more urgent.  Fortunately, with the city’s municipal election fast approaching in May and affordable housing at the top of voter’s priorities, pressure is being put on the government to make changes.

All levels of government are taking steps to eradicate the supply-demand gap of affordable housing. When Justin Trudeau was elected Prime Minister of Canada in 2015, his Liberal Party platform included a number of affordable housing initiatives. As a first step towards combatting rising house prices, Trudeau introduced the foreign buyers tax, which taxes the wealthy incoming foreign home buyers who have been driving up prices. More significant, however, is the party’s budget for affordable housing across the country. An estimated 11 billion dollars will be provided in the coming years to cities that are experiencing affordable housing shortages. Mayors in all major cities are excited by the prospects of this funding, and are striving to match funds in order to create more affordable housing, as an investment in the future of the country.


Financing Public Education

Education is one of the most traditional positive externality examples – it generates increases in productivity, GDP and improves standards of living. As a good, it is considered mixed, a public good in some concerns and private in others. Publicly funded education has the fundamental purpose of many other public policies, to promote equal opportunity. But at what cost? It is never easy to make the population understand that they are not paying taxes to fund others’ benefit – but for social, and consequently, their own benefit as well. Such is the case when new technologies
are developed and services are provided with quality, in a well-educated world. [1] And even if we could get this message across to everyone, the question would remain: How much of public education should be funded by taxes, and which?

Prior to being allocated to different projects and regions, public education money, especially for mandatory schooling, has to come from somewhere, and there isn’t yet a consensus about it. Particularly, Europe’s approach to this question differs from that of the United States.

In Portugal, this distinction is not only unclear – it’s unintelligible. The funds used in education expenditure come from the State Budget, which includes all Government revenue, from which a share is applied in this framework. This percentage stays around 4 to 5% of GDP, and its fluctuations that can be explained by electo
ral cycles or macroeconomical ones[2]. Afterwards, funds flow through the beaurocracy until they reach, more or less indirectly, the school groups (“Agrupamentos”), as depicted in the flowchart below.[3]

For the case of the United States, as the administrative system is completely different, there are many diverse approaches across time and space. However, one example is the close link that the property tax has to education funding.

This kind of direct association between sources and applications oftax revenue can bring benefits and pitfalls. For instance, the way a tax on property effects the population may raise equality concerns, and changing tax policy with such direct correlation carries risk for education.[4] Besides, any risk connected to the volatility of the real estate market can result in direct repercussions in such an important part of society. On the other hand, the absence of a direct connection, like in Portugal, limits the ability of policy designers to change any aspect of education funding directly, such as local adjustments and decentralization.

Regardless of the method, it is important to take education as an investment which will have very serious long term consequences in society. Despite needing us to protect it from as many temporary shocks to the economy as possible, its need for funding subjects it, continually, to economic cycles.

grafico

[1] https://www.youtube.com/watch?v=x78PnPd-V-A

[2]http://www.pordata.pt/Portugal/Despesas+do+Estado+em+educa%C3%A7%C3%A3o+execu%C3%A7%C3%A3o+or%C3%A7amental+em+percentagem+do+PIB-867

[3]http://www.dgeec.mec.pt/np4/np4/%7B$clientServletPath%7D/?newsId=192&fileName=Financiamento_publica__o.pdf

[4] http://cgfa.ilga.gov/Upload/2008-NOV%20EDUCATION%20FUNDING%20Elementary-Secondary.pdf


Is Fiscal Federalism Good for Growth?

Fiscal federalism can be broadly defined as the financial relations between different levels of government – central, regional, municipal level, etc. – and the term was firstly introduced by Musgrave (1959). Under fiscal federalism, provision of public goods is decentralised to subnational governments, allowing better-tailored public goods/services to the preferences of a heterogeneous population. Thus, the main question to ask is which task should be assigned to which governmental level, and how it should be financed.

In the recent decades, we have observed a significant effort from countries in implementing policies towards decentralization due to its arguably beneficial effects in economic performance. In Portugal, the decentralization process started with the new constitution, written in 1976, after the reestablishment of democracy. However, this has been a lengthy process and the country is still considered one of the less decentralized European countries. Several reforms have been put in place in order to increase the level of decentralization, under the main arguments of a higher fiscal efficiency and stronger political accountability.

The theory of fiscal federalism is based on the seminal work of Tiebout (1956), whose basic economic arguments in favour of fiscal decentralization rest on two main assumptions. On the one hand, decentralization increases economic efficiency since local governments are capable of providing better services due to proximity and informational advantages. On the other hand, competition and population mobility across local governments for the delivery of public services ensure the right matching of preferences between local communities and local governments. In summary, subnational fiscal autonomy ensures efficient allocative outcomes, which may eventually lead to higher growth rates.

The relationship between decentralization and growth has been technically formalized by several theoretical models, but its conclusions are not clear-cut regarding the actual transmission mechanism.

Empirically, this relation relationship is also ambiguous. Several studies find a positive relation between fiscal decentralization and economic growth, while other studies fail to find any relationship, and some even identify a negative one. The reason for these discrepancies in results is mainly related with the measures of fiscal decentralization that vary across studies.

Even without a strong empirical evidence to support, the trend for both developed and developing countries has been to fiscally decentralize. In Portugal, the main step towards decentralization was made in 1989 with the introduction of a property tax (Contribuição Autártica), whose revenues were fully managed by local governments, who had also discretion in setting the property tax rate. This measure intended to increase local fiscal autonomy by enhancing their source of fiscal revenues, increasing their political accountability and decreasing the reliance on financial transfers from the central government. However, the process has not been immediate and, currently, it is far from been finished. Even after several reforms, Portuguese local governments are still on the process to be autonomous with the most important source of revenues still being transfers from the central government (more than 20%).

 Catarina Alvarez

References

 


Taxation on alcohol: decreasing society’s burden and increasing welfare

According to the World Healthcare Organization (WHO) estimations, Portugal is the 11th higher consumer of alcohol per capita in the world. You may consider that drinking is part of the Portuguese “life style”, and that it is a cultural matter that we should stay out of. But should we?

In 2013, of all Portuguese deaths, 2.2% were attributable to alcohol consumption. Moreover, there is a health, social and economic burden borne by the society due to the harmful consumption of alcohol: (1) direct costs in health, police, criminal justice, unemployment and welfare systems; (2) indirect costs due to loss in workforce productivity; and (3) intangible costs like diminished quality of life of drinkers and the people linked to them. Broadly, it is estimated that the cost of alcohol to society, on average, in high-income countries, is 2,5% of GDP.

However, we should preserve the health benefits of the moderate alcohol consumption. So my kick off question is: is the Portuguese population drinking moderately?

According to the 2014 report, “A Situação do País em Matéria de Álcool”, the consumption of alcohol per capita in Portugal is 12,9 litres of pure alcohol per year, which is above the 10,9 average of Europe Region WHO. This suggests there is a drinking problem in Portugal that needs to be tackled. Moreover, a major concern is the harmful alcohol consumption of young adults. Youth evidenced 18% of binge consumption against 12% for all consumers. Same figures apply to severe intoxication (11% in youth against 6% in total population), being the 15-24 years-old the group with the highest prevalence. In addition, 46% of the 15-24 and 48% of 25-34 years-old consumes six or more alcoholic drinks in one occasion, which are the highest rates amongst all the decennials.

Therefore, there is a call for policy actions to tackle the behaviour of consumers, particularly young adults that might be endangering their future.

My suggestion to address this issue is increasing the taxation over alcoholic beverages, supported by the research “The Effectiveness of Tax Policy Interventions for Reducing Excessive Alcohol Consumption and Related Harms”, American Journal of Preventive Medicine. This research suggests that raising alcohol taxes is an effective strategy to reduce excessive alcohol consumption and its harms. Furthermore, it also suggests that the impact of a tax increase will depend on factors such as disposable income and the demand elasticity (how consumption changes with changes in prices) for alcohol. On this matter, “The Effects of Prices on Alcohol Use and its Consequences”, Alcohol Research & Health, found that youth is more responsive to price changes than the general population (an increase in the price of alcohol will decrease the consumption of alcohol in youth more than in the other groups, exactly what we want!).

As you can see in the statistics presented first, Portugal is struggling to reduce the harmful consumption of alcohol. Together with the previous arguments that the tax can decrease the consumption of alcohol, I believe that the optimal tax, which maximizes wellbeing and diminishes the cost of drunken people and their actions to the society, is higher than the tax in place right now.

Concluding, we should increase the tax on alcohol closer to the optimal tax!

 

Patrícia Sofia Pinto e Filipe 

Master in Economics – Public Finance


Why can’t we set the right fuel price?

Every week all of us, especially drivers, hear news about relative changes in the price of the different types of fuel. These adjustments are perfectly normal. Although, this topic is sometimes subject to some discussion and differences of opinion.

As Portugal is one of the European countries with the highest tax burden in fuel [1], then some drivers, especially residents living near the border between Portugal and Spain, and workers from transport companies tend to fill in their deposits in Spanish stations. Obviously there are consequences arising from this issue, namely the shift of consumption from one country to another and the loss of tax revenue that the Portuguese Government would receive from such taxes – in 2007, under other economic circumstances, Deloitte predicted that the shift of consumption to Spain could lead to losses of 84 million Euros [2].

This March, the Portuguese Minister of the Economy requested people living near the border to stop filling up in Spain, once by doing so, they would be paying taxes there instead of in their country, which would not be positive for the Portuguese public accounts [3].

But where does the difference in prices comes from? In Portugal, to the market value of fuel, are added the values of VAT, ISP (Imposto sobre Produtos Petrolíferos), the carbon tax, an extra biodiesel cost and some other contributions [4] in such an amount that, on average, fill in a 60 liter deposit becomes, cheaper in Spain by fifteen Euros [5].

The fact that the prices of fuel in Portugal are so high in comparison with other European countries, have a negative impact both on families (especially the lower income ones), and on companies, which use fuel for their businesses.

Thus, which measures can be discussed to improve families and companies’ situation, while at the same time allowing the country to keep receiving tax revenues?

Once fuel taxes impose a greater tax burden in the poor, as they are regressive taxes, the decrease of the price of the fuel could be very pertinent especially for those lower income families. Such measure would allow them to have more disposable income which could be spent in other consumption goods, increasing Government’s revenues with other taxes.

Moreover, from the companies’ perspective, several measures were already approved by the Government, like the partial tax refund in professional diesel for some companies in four gas stations near the border [6]. This policy, if extended to the remaining country, creates incentives for companies to respond to the minister’s appeal and not shift consumption to Spain. As companies would reduce their variable costs, they would become more profitable (and more competitive) leading to greater income taxes for the Government. For the same purpose (or alternatively), a specific lower-priced fuel could be produced for other economic activities, like the green fuel was created for agricultural purposes.

This issue is likely to keep under scrutiny as long as the three sides – families, companies and State – are not fully satisfied with the policy results.

Miguel Madeira, nº 3117

References:

[1] Prado, M; “Impostos atiram Portugal para os cinco países com a gasolina mais taxada da Europa”; Jornal Expresso em 04/02/2016; http://expresso.sapo.pt/economia/2016-02-04-Impostos-atiram-Portugal-para-os-cinco-paises-com-a-gasolina-mais-taxada-da-Europa

[2] Estudo Deloitte feito para a APETRO; Artigo de Opinião nº 44; Junho de 2007; http://www.apetro.pt/documentos/folha44.pdf

[3] Delgado, H; “Ministro pede a portugueses para não abastecerem em Espanha”; Diário de Notícias em 11/03/2016; http://www.dn.pt/portugal/interior/ministro-da-economia-pede-a-portugueses-para-nao-abastecerem-em-espanha-5072884.html

[4] Inf. 26 do Website da APETRO; “A evolução da fiscalidade sobre os combustíveis desde a liberalização do mercado”; em 03/11/2014; http://www.apetro.pt/index.php?option=com_content&task=view&id=343&Itemid=191

[5] Malhão, M; “Combustíveis: abastecer em Espanha rende 15 euros num depósito”; Diário Económico em 14/05/2016; http://economico.sapo.pt/noticias/combustiveis-abastecer-em-espanha-rende-15-euros-num-deposito_249431.html

[6] Ofício Circulado N.º 35.060, 2016-09-13; Autoridade Tributária e Aduaneira