Ideally, you would pull the paper forward, add a bit of wall paper paste and push it back and then use regular caulk once the paste had dried.
In the real world you will probably find the as the ceiling and wall join cracked, some of the plaster fell to the bottom of the loose paper. If you try to glue it back, you may well have lots of grit that is visible once the glue dries.
When faced with those kind of small areas, I normally cut the paper away and back fill with RedLite (or similar).
It might be worthwhile gunning some fibracryl in to the wall/ceiling join first but it isn't really designed for joints that are quite so subject to that much movement. For the sake of an extra tenner, I would recommend using a modified silicone polymer such as CT1, Sikaflex, etc. MS polymers are almost as flexible as silicone sealants but they can be painted over (unlike silicone). Unlike acrylic caulk, they don't shrink back.
A massive down side to using MS polymers is that if you paint straight over them with oil based paints, the paint remains tacky for months. Not a problem when using water based paints though (I use waterbased primer before I paint over them). They are sticky but as someone else here taught me, dip your finger in white spirit to smooth it.
Other than the above, the only notable downside is the cost. £2 for regular caulk, up to £10 for the likes of CT1. Possibly annoying if you only need a tenth of a tube but when you factor in your own labour value, unless you are unemployed, it is often the case that the more expensive products will reduce your labour time and end up being the cheaper option (once you factor in your own labour costs/ versus something else you could have been doing).
Sorry, none of the above is intended to read as being condescending. I am aware that when some people ask for advice, they want the path of least
expenditure. On other occasions, somebody might be more concerned about longevity rather than initial outlay. As a professional I tend to offer advice that errs towards the latter.
