There are substantial psychological gains from having a strong welfare state, finds new research done jointly by the University of Warwick and City University. Social spending acts to reduce citizens’ worries about the future.

The report uses data on 280,000 randomly sampled citizens in Western Europe between the years 2005 and 2022. Approximately 40% of citizens in Western Europe now report high levels of worry, and over time there has been a continuing upward trend in ‘national worry’. The proportion of individuals experiencing extreme worry has increased at an underlying rate of 10 percentage points in the West European population over the last decade.

A rising trend in national worry levels was visible in the data, the researchers show, well before COVID, the invasion of Ukraine, and the conflict in Gaza. “In that sense, we find that something foundational, and currently not understood, appears to be going wrong within western society. It is true even beyond Western Europe.” said Lucia Macchia of City University London, one of the two authors. The authors also examined data on the whole OECD.

Her co-author, Andrew Oswald, professor of economics and behavioural science at the University of Warwick, said “This research, on what determines the level of worry within a society, seems to be the first of its kind. One finding is that social spending by a government apparently acts as a protective mental buffer against worry. Social spending reduces people’s fears. The welfare state appears to have remarkable psychological value -- including for those who do not use it -- in a way that I suspect is not completely understood, although I am prepared to bet that William Beveridge understood it.”

The authors show that of all the OECD nations the United Kingdom had the fastest growth in worry levels between 2010 and 2019 (before the special COVID years in which data comparisons become less reliable). Costa Rica had the next-highest growth in worry.

The UK had the strongest decline in social spending across the European nations studied by the authors, and one of the strongest in the OECD. All social spending levels in the authors’ report were calculated relative to GDP.

• NATIONAL WORRY AND THE PSYCHOLOGICAL VALUE OF THE WELFARE STATE is available as pdf by request and downloadable at www.andrewoswald.com and www.luciamacchia.com

Many factors contribute to the persistence of pay disparities between women and men in the workplace, from unequal responsibility for caring for children to occupational segregation and the glass ceiling. There is also a growing body of evidence that women, as a group, are hesitant to compete against men, which affects promotion prospects and salary negotiations.

A new study by Dr Lory Barile and Professor Michalis Drouvelis explores this phenomenon using a laboratory experiment which tests the effect of an intervention known as “priming.” Priming theorises that exposing a person to a stimulus, such as a poem, article or word puzzle, can affect how that person responds to a later prompt, without them being conscious of the influence.

In the experiment, participants were asked to complete as many sums as possible in three minutes, correctly totalling four randomly-generated two-digit numbers each time. They were paired with another participant but it was not a collaborative task.

• In the first round, each correct sum was rewarded with a payment of £0.50.
• The second round introduced an element of competition – the participant in the pair with the most correct answers got £1.00 per answer while their opposite number got nothing.
• For the third round, participants could choose whether to accept the flat rate or to compete against their partner.

Between rounds two and three, some of the participants were assigned a priming task. One task involved unscrambling neutral sentences, while the other asked participants to unscramble sentences with themes of winning, competing and scoring.

Analysis of the results showed that in both of the groups which experienced priming, more women chose to compete in the third round, thus closing the gender gap.

• In the group which was not primed, 36 per of women chose to compete in round three compared to 59 per cent of men.
• In the group which did the neutral priming task, 48 per cent of women and 56 per cent of men chose to compete in round three.
• In the group which did the competitive priming task, 47 per cent of women and 64 per cent of men chose to compete in round three.

One interesting aspect of the findings was that the neutral sentences actually closed the gap more than the sentences themed around competitiveness. The researchers concluded that this was because the sentences triggered negative associations, possibly triggering anger, which is known to increase competitive behaviour.

Dr Barile said “Our paper shows that the reactions and feelings which the priming task triggers matter, and that a neutral priming is more effective in reducing the gender competition gap.

“In order to effect change, more research is needed in this area, but this easy-to-implement intervention may have significant potential in reducing the gender gap in female representation in male stereotyped high-competitive, high-reward positions.”

Professor Drouvelis added: "Gender differences in labour market outcomes constitute one of the fundamental policymaking concerns in economics. Our work uses psychological techniques that can offer valuable insights how gender disparities in competitiveness - a measure used to predict career choices and prospects - can be mitigated."

• Priming and the gender gap in competitiveness. Dr Lory Barile and Professor Michalis Drouvelis. Warwick Economics Research Papers No 1490 February 2024

Total capital gains have almost tripled over the last decade, to £65bn by 2019/20. Despite this, most people never receive any capital gains, with less than 3% of adults paying capital gains tax over a ten-year period. In any given year just 0.5% of adults receive any gains, less than the number of additional rate (“45p”) income tax payers.

Instead, capital gains are incredibly concentrated:

· Three in every seven pounds of gains in the UK go to people earning more than £150k. By contrast the same group receives one in every seven pounds in income.

· More than half (52.2%) of all taxable gains in 2020 went to just 5,000 people, who received an average of over £6.8m per person in gains.

· Gains are strongly concentrated in southern England, with more gains in the parliamentary constituency of Kensington than in all of Wales. One neighbourhood of Kensington, comprising just 6400 people, had more gains than three major cities combined: Liverpool, Manchester and Newcastle.

· Even within London there are large disparities: someone living in Kensington is more than 50 times as likely to receive gains as someone in Barking.

These findings come from new research which gained unprecedented access to the anonymised tax records of capital gains tax payers. The study, by researchers from the University of Warwick and The London School of Economics and Political Science (LSE), analysed the anonymised personal tax returns of everyone who received taxable capital gains between 1997 and 2020.

A capital gain is the money received from selling an investment for more than the purchase price. Capital gains face a separate tax regime to income, with rates varying between 10 and 28% depending on the taxpayer’s income level and the type of asset sold. Capital gains tax rates are always lower than income tax rates for the same person, with reliefs in place that allow up to £10million to be received at a 10% tax rate even for the highest rate taxpayers.

These preferential rates benefit few people, who are largely well-off. Just 0.3% of people with income under £50,000 had taxable gains in an average year, but this rises to almost 40% of taxpayers with incomes over £5m receiving some gains. The median gainer in the latter group received £372,000 in gains in an average year, benefiting substantially from the gap between capital gains tax and income tax rates.

Ranking people by gains received, the top 50,000 gainers – who make up about 0.1% of UK adults – received 86.4% of gains, worth £56 billion in total, with each person receiving at least £143,000.

Before reforms in 1998, capital gains tax was progressive: those with the highest gains paid a higher share in capital gains tax. Since the early 2000s, by when the 1998 reforms had fully taken effect, capital gains tax has largely been neutral among top gainers. Under the ‘taper relief’ regime in the 2000s it was in some years regressive.

Arun Advani, Associate Professor at the University of Warwick’s Economics Department and CAGE Research Centre, said: “Capital gains are absurdly concentrated, with half the gains in the entire country going to as many people as could fit in the Albert Hall. Less than one in thirty people have any gains at all over the course of a decade.”

Andrew Lonsdale, Research Officer at LSE’s International Inequalities Institute (III), said: “There are more capital gains in Kensington than the whole of Wales, and more in Hampstead and Kilburn than the North East of England. Continuing to tax these gains at a lower rate than earnings from work is the complete opposite of ‘levelling up’.”

Andy Summers, Associate Professor at LSE Law School and III, said: “Although not common in the wider population, capital gains are a standard way to receive remuneration for the super-rich. This makes the tax break for capital gains particularly regressive.”

ENDS

Notes to editors

1. CAGE Policy Brief Who would be affected by Capital Gains Tax reform by Arun Advani, Andrew Lonsdale, and Andy Summers is available here: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/bn40.2024.pdf
2. A taxpayer realises a capital gain when they sell (or otherwise dispose of) an asset that has increased in value from the price at which they acquired it. Capital Gains Tax typically applies if the assets sold were held for investment.
3. The report used access to anonymised confidential data from the tax records of everyone who received taxable capital gains at any point over the period 1997­–2020, accessed via the HMRC Datalab.
4. Mandatory disclaimer: This work contains statistical data from HM Revenue and Customs (HMRC) which are Crown Copyright. The research data sets used may not exactly reproduce HMRC aggregates. The use of HMRC statistical data in this work does not imply the endorsement of HMRC in relation to the interpretation or analysis of the information.
5. This research was funded by the Nuffield Foundation 'Reforming Capital Gains Tax' grant (GE/FR-000024377) grant, the Economic and Social Research Council (ESRC) through the ‘Taxing the Super Rich’ grant (ES/W001683/1) and CAGE Research Centre at Warwick (ES/L011719/1), and by LSE International Inequalities Institute, LSE Law, and Warwick Economics.

Speaking to a joint committee of both Houses of Parliament on the first session of its new inquiry into the UK’s economic security, Professor Dennis Novy highlighted the importance of the UK working with like-minded allies on trade policy and urged the government to “make serious strategic investment” in data skills and data availability in order to become “fit for the digital age.” He also called for greater clarity on the UK’s long-term international trade strategy in an increasingly volatile world.

The Joint Committee on the National Security Strategy (JCNSS) was created in the 2005-10 Parliament to assess and review aspects of the UK’s National Security Strategy. Its new inquiry aims to take stock of the UK’s economic security, and ask whether the Government has the necessary powers and capabilities in place to intervene in the economy on national security grounds, to enforce economic deterrence measures and enhance economic resilience.

Professor Novy was invited to give evidence alongside Agathe Demarais, Senior Policy Fellow at the European Council on Foreign Relations, and John Gerson, Visiting Professor at The Policy Institute, King’s College London in a session focusing on foreign affairs and international political economy.

He said: "It is important that Parliament is launching an inquiry into the UK's economic security. We live in volatile and uncertain times, and our economy needs to be able to adjust to unexpected shocks and events. It will be a crucial part of the strategy to work with our allies and focus on the UK's economic strengths, especially in the services sector and in services exports. We also need to improve our ability to harness micro-evidence from large-scale data sets so that we have a more detailed picture of what is going on in the UK economy and how policy choices can make it more secure."

• Read a full report on the CAGE website 
• Read more about the committee: https://committees.parliament.uk/work/8033/
• Watch the evidence session: https://parliamentlive.tv/event/index/5415891d-78ed-44e7-98f9-31fc28c9c137
• Read some of Professor Novy's research on the importance of services and services exports: Urban-Biased Structural Change, CAGE working paper no. 694

Professor Dennis Novy has given evidence to members of the London Assembly on the impact of Brexit on the London economy, at the invitation of the Assembly’s Economy CommitteeLink opens in a new window.

He presented data on the economic costs of Brexit and the problems created for businesses of all sizes by customs checks and regulatory divergence.

Responding to members’ questions he reminded the committee that the UK had given up a position of significant influence in shaping EU trade policy, going back to Margaret Thatcher’s premiership and Peter Mandelson’s contribution as EU Trade Commissioner, and also pointed out the “uncomfortable” fact that the UK is not one of the countries which accepts the highest number of immigrants, a fact sometimes overlooked in public debate.

Introducing the data, Professor Novy told the committee: “Brexit has been a very expensive policy adventure for the UK economy. The impact on UK GDP is something in the range of 3 - 4 per cent. Where does that impact come from? The biggest issue is increased costs for consumers - higher prices and inflation."

Responding to an invitation from the Chair to sum up the positives and negatives of Brexit, Professor Novy encouraged policy-makers to focus on “the art of the possible” and to work in a cross-party way to develop a strategy that reflects the strengths of the UK and the London economy, particularly a cohesive strategy for trade in services. He recommended “more predictability, less uncertainty,” and called for action to “tackle regulatory divergence” saying: “I wish politicians strength and courage to do this in a way that takes voters with them.”

• Professor Novy was one of five invited experts giving evidence and taking questions from the members of the Economy Committee in City Hall on 11 January 2024. The meeting was also webcast live.
• Visit the CAGE website for a fuller report.

Congratulations to Associate Professor Mingli Chen who has been appointed as Associate Editor of the Journal of Econometrics from 1 January 2024

The Journal of Econometrics serves as an outlet for important, high-quality, new research in both theoretical and applied econometrics. The scope of the Journal includes papers dealing with identification, estimation, testing, decision, and prediction issues encountered in economic research. Classical Bayesian statistics, experimental design, and machine learning methods are decidedly within the range of the Journal's interests.

Mingli Chen is an Associate Professor of Economics in the Department of Economics at the University of Warwick, a Research Associate at CeMMAP, and a Turing Fellow at the Alan Turing Institute (the UK's National Institute for Data Science and Artificial Intelligence). She is working on econometrics, with a special focus on panel data models, social networks, quantile regression, and AI + machine learning both in theoretical inference and applications in economics.

Visit Dr Chen's staff profile for further details about her research and publications.

A seasonal message from our Head of Department.

We are approaching the end of the first term for this academic year. With the festive season upon us, I would like to take this opportunity to thank you for all the hard work that you have put in this term, and to wish all of you a relaxing break over the holiday period, spending time with family and friends (where possible).

I hope 2024 will be a great year for all, bringing health and happiness to you and your families.

Several festive events are happening on campus, for details of activities please visit the University's Christmas at Warwick webpage.

Department Closure Dates

The department will be closed over the festive holiday from 5pm on Friday 22nd December 2023 to Tuesday 2nd January 2024.

Best Wishes,

Professor Ben Lockwood

Head of Department - Economics

On Tuesday 28^th November Professor Jonathan Haskel CBE, external member of the Bank of England Monetary Policy Committee (MPC), delivered a speech at Warwick University in an event jointly hosted by the Warwick Finance Societies and the Warwick Economics Society.

Oliver Greenfield, Head of Markets at the Warwick Finance Societies, reports:

"Jonathan Haskel is one of the 9 committee members who sets the UK bank rate whilst also currently being a Professor of Economics at Imperial College Business School. Professor Haskel's research interests of productivity, innovation, intangible investment and growth led him to be a distinguished member on the editorial boards of Economica, Journal of Industrial Economics and Economic Policy.

"In his speech, UK inflation since the pandemic: How did we get here and where are we going? Professor Haskel explored the drivers of the UK inflation experience since 2020 by applying the Bernanke and Blanchard (2023) model. Using this model, he explained how the exogenous shocks which hit the UK economy fed through to result in the elevated inflation figures experienced, dispelling the commonly cited narrative that the Bank of England was wrong to characterise inflation as transitory. After reflecting on his experience on the MPC, Jonathan gave some thoughts on the future of monetary policy and concluded that without a sufficient loosening of labour market conditions inflation would stay elevated and hence interest rates would remain restrictive.

"After the event, Professor Haskel generously stayed behind to answer all of the many questions that students, academics, professors and external attendees wanted to ask. The event provided an invaluable insight for all those who attended and served as a great reminder of the application possible with the economic theory taught at Warwick University."

• The text of Professor Haskel's speech and his slide deck can be found here: https://www.bankofengland.co.uk/speech/2023/november/jonathan-haskel-speech-at-warwick-university.

The Department of Economics at Warwick has been placed 29th in the world amongst university economics departments, according to 2023 Global Ranking of Academic Subjects (GRAS) for economics published on 27 October 2023. This ranking places us 5th out of the UK based departments of economics, after the LSE, Oxford, Cambridge and UCL.

The 2023 GRAS contains more than 1,900 out of 5000 universities across 104 countries and regions in the world. The GRAS rankings use a range of objective academic indicators and third-party data to measure the performance of world universities by subject, including: research output, research influence, international collaboration, research quality and international academic awards.

This follows on from our success in the QS Rankings 2023 which placed us 22nd in the world for economics and econometrics.

More information about this league table can be found on the link to 2023 Global Ranking of Academic Subjects 2023 - Economics. And the Shanghai Ranking 2023 press release – 27 October 2023.

We are pleased to report that this year’s results of two national postgraduate student surveys show high levels of satisfaction amongst our postgraduate student community.

Postgraduate Taught Experience Survey (PTES) 2023

The overall satisfaction with the quality of the course remains high – 91% with 96% of our postgraduate taught students saying that they would recommend the University of Warwick. This was achieved with a response rate of 51.6% of the postgraduate taught cohort.

The top satisfaction scores in PTES were in:

• Teaching: 92% agreed that ‘staff are good at explaining things’ and 91% agreed that ‘the course is intellectually stimulating’.
• Resources: 96% agreed that they ‘have been able to access subject specific resources necessary for their studies when on campus.’
• Dissertation: 97% were ‘happy with the support received for planning their dissertation.’

There were also high scores received in the categories of Skills Development (88%), Organisation (87%) and Support (85%).

Postgraduate Research Experience Survey (PRES) 2023

The overall satisfaction amongst postgraduate research students was 85% with the top scores in:

• Supervision: 89% agreed that their ‘supervisor had the skills and subject knowledge to support their research.’
• Research skills: 91% agreed that their ‘skills in critically analysing and evaluating findings and results have developed during their programme.’
• Professional development: 89% agreed that their ‘ability to communicate information effectively to diverse audiences had developed during their programme.’

Dr Claudia Rei, Deputy Head of Department (Teaching & Learning) said:

“We value student feedback as we want to deliver the best teaching and learning possible. So, we’re very pleased to see such encouraging results. We also want to make further improvements in the future and are already looking at ways to address some of the areas where our scores could have been higher such as Engagement and Assessment in PTES and Support in PRES. We also encourage students to submit their feedback to us throughout the year.”

Further information about the two postgraduate student surveys can be obtained from the University's webpages for PTESLink opens in a new window and PRESLink opens in a new window.

Examples of how we have responded to student recently can be found on our webpage We have acted on your feedback: Postgraduate TaughtLink opens in a new window and Postgraduate ResearchLink opens in a new window.

If you are a student of the Department of Economics, you may submit feedback to us at any point via the Student Feedback FormLink opens in a new window.

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