This paper examines optimal fiscal and regulatory policies within a New Keynesian (NK) framework that incorporates household fairness concerns regarding firm pricing behavior. Households derive utility not only from consumption and leisure but also from their perception of price fairness, which is influenced by biased beliefs about the price markup. These misperceptions reduce the effective price markup, as firms adjust pricing to avoid a demand backlash. The planner faces a trade-off between addressing monopolistic distortions, traditionally managed through the labor subsidy, and mitigating fairness concerns amplified by behavioral biases as spending increases. When biases are mild, the optimal fiscal policy remains the labor subsidy, though smaller than in the standard NK model. As fairness dynamics strengthen, the optimal policy shifts to a labor tax aimed at alleviating perceived unfair pricing, albeit with additional welfare losses. Capping the price markup can replicate the labor subsidy under moderate biases but loses effectiveness as fairness intensifies. These findings provide theoretical insights into how fairness-related behavioral distortions shape policymakers’ trade-offs and inform the design of optimal fiscal and regulatory policies.

Using a Bayesian Global VAR model as a methodological tool, we analyze how heightened geopolitical risk shocks propagate across advanced economies and quantify the economic effects of these events. The global VAR impulse response functions in response to the skyrocketing Russian geopolitical risk after Russia’s invasion of Ukraine revealed a contraction of GDP and an increase in inflation. Eastern European and Baltic countries are particularly affected by the Russian geopolitical risk shock. We also document a strong component of the Russian geopolitical risk shock that is not driven by fossil fuel prices.

In Japan in the 1920s, several financial crises and government policy led to bank mergers and the consolidation and expansion of branch networks. Using unique historical bank branch-level lending and deposit data, we show that branch banking integrated peripheral markets with the rest of the country, with large urban banks – those headquartered in Tokyo and Osaka – using deposit supply shocks in peripheral areas to fund lending in their core markets. While these findings support contemporary concerns about branch banking draining funds from peripheral markets, we argue that the export of liquidity by urban banks likely represented an efficient reallocation of credit, driven primarily by competition in funding markets. Faced with high-yielding lending opportunities in central prefectures, urban banks bid up deposit rates in peripheral areas, raising local banks’ funding costs. Local banks responded by lowering intermediation margins and reducing lending to traditional industries, which suggests that they shifted their lending to less risky and more efficient customers. We speculate that this competitive reallocation of capital across regions and sectors allowed banks to maintain a functional specialization in different customer segments, which may explain the continued coexistence of small relationship lenders and large integrated arm’s-length lenders in local banking markets.

In many tourism-dependent islands, an acute imbalance between increasing demand for wastewater management and the capacity of existing sewage infrastructure represents an increased risk for ecosystems and population health. Given that locals may be opposed to increasing tourism taxes to fund investments in sewerage, promoting charitable giving among tourists may be an alternative to improve wastewater management in tourist destinations. Using a contingent valuation survey, this study assesses whether tourists are willing to donate to improve wastewater management in San Andres Island, Colombia. Split-sample treatments were implemented to examine the response of tourists' giving preferences to priming communications regarding the effects of poor wastewater management. Results indicate that tourists are willing to donate to improve local wastewater management. Our findings also provide useful insights about tourists' giving preferences to design effective charitable giving campaigns to improve wastewater management.

Using novel nighttime lights and high-resolution atmospheric reanalysis, this paper exploits exogenous fluctuations in temperature and precipitation to identify the causal effects of weather disturbances on local economic growth in the Philippines – the world’s most disaster-prone country. Our findings reveal that heightened temperature variability significantly dampens growth, but only in poor municipalities. This effect persists for at least 2 years after the initial shock. Furthermore, the relationship between weather shocks and growth is nonlinear. We also demonstrate that adverse weather events impede growth by disrupting agricultural productivity and essential service sectors, including wholesale and retail trade, health and education. Overall, our results highlight the importance of understanding the distributional impact of climate change within countries, its underlying mechanisms, and how economic development policies can help shield poor municipalities from the vagaries of the weather.