Law and justice/Legislation; Management and economics/Financial management; Politics and government/Intergovernmental relations

This report discusses the federal debt increase, which can increase when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations (increasing debt held by the public), or when the federal government issues debt to certain government accounts in exchange for their reported surpluses (increasing debt held by government accounts).

This report compares the various funding levels that have been considered during the 112th Congress with H.R. 1473, a compromise reached just before the expiration on April 8 of the sixth continuing resolution (CR). H.R. 1473 provides discretionary budget authority to run the federal government for the remainder of FY2011, and includes both discretionary and mandatory spending reductions.

This report explains how the sovereign credit default swap (CDS) market works and how such CDS price trends may illuminate fiscal stresses facing sovereign governments. Although CDS prices may be imperfect measures of the federal government's fiscal condition, some investors may try to glean information from those price trends. CDS prices have been playing an important role in the European government debt markets and could potentially affect U.S debt markets in the future. European policymakers have debated certain restrictions on types of sovereign CDS trading, and such calls for reform may be of interest to U.S. lawmakers.

This report discusses how the total debt of the federal government can increase, an historical overview of debt limits, and how the current economic slowdown has led to higher deficits and thereby a series of debt limit increases, as well as legislation related to these increases.

This report discusses how deficit finance can help governments manage their economies and how large and persistent deficits can lead to severe economic problems.

This report discusses historical, current, and projected discretionary spending trends. It also describes how current discretionary spending trends reflect national priorities. Discretionary spending is provided in, and controlled by, annual appropriations acts, which fund many of the routine activities commonly associated with such federal government functions as running executive branch agencies, congressional offices and agencies, and international operations of the government.

The article analyzes effects of borrower interest rates and student lender subsidies on federally guaranteed student loan volumes from 1988 to 1994 and from 1996 to 2006. Some have argued that lender subsidy cuts would reduce loan supply or cause lenders to exit the student loan market. If lenders get economic rents due to overly generous subsidies, a simple model of the student loan market suggests that small changes in subsidy levels should not affect loan supply. Empirical results based on a variety of generalized method of moments panel estimators suggest that evidence of links between higher special allowance payment margins and higher loan volumes is weak or inconclusive for both the 1988-94 and 1996-2006 periods. Subsidy reductions, according to this analysis, had no discernable effect on student loan volumes. Results also suggest that higher real borrower interest rates reduce student loan volumes for public colleges and universities. Changes in the federal student loan program in the wake of the credit crunch that began in August 2007 are briefly discussed, along with current proposals to shift all new loans to a direct lending program.

Many economists find that classroom experiments using the Double Auction (DA) trading institution are an effective pedagogical tool in introductory economics classes. Results of such experiments reliably illustrate the concepts and descriptive relevance of the theory of competitive equilibrium (or CE). However, we have noticed that the degree to which students are "surprised" by the CE theory's ability to predict DA outcomes seems to vary from class to class, and especially across classes at markedly different universities. We speculate that this is due to differences in students' ideological leanings and that these, in turn, are related to various socioeconomic or "identity" variables, such as class and race, that may vary systematically across universities. This paper reports some initial experimental results that explore this hypothesis. We find that only a few socioeconomic variables significantly predict students' ideology, and that at least one measure of ideology is a robust predictor of students' prior expectations and posterior evaluations of the predictive performance of CE theory. Several other variables, including sex, union status and work experience, also help predict students' expectations or evaluations; but none of these is as strong or robust as ideology itself.

The paper analyzes effects of borrower interest rates and student lender subsidies on federally guaranteed student loan volumes from 1988 to 1994 and from 1996 to 2006. In present and past policy debates, some have contended that lender subsidy cuts would cause some lenders to reduce loan supply or to leave the student loan market. A simple model of the student loan market suggests that if lenders receive economic rents due to overly generous subsidies, small changes in subsidy levels should not affect loan supply. The empirical results based on a variety of GMM panel estimators find evidence of a link between higher SAP margins and higher loan volumes is weak or inconclusive for both the 1988-1994 and 1996-2006 periods. This suggests that subsidy reductions had no discernable effect on student loan volumes. Results also suggest that higher real borrower interest rates reduce student loan volumes for public colleges and universities.

In September 1992 French voters in a national referendum approved the Maastrict Treaty, which instituted several provisions for closer European integration including creation of the Eurozone. This paper analyzes political and economic forces that affected French voters, and the links between the progress of European integration and changes in redistributive spending. Conventional wisdom ascribes the persistence of the Common Agricultural Program subsidies to the political power of farmers, although direct evidence of this has been sparse. The statistical analysis here finds that support for European integration is weaker, other things equal, in areas where farmers were most affected by the MacSharry reforms, which reduced some support prices and began the process of "decoupling" agricultural subsidies from production. Results also show previous support for European integration and pro-European politicians are correlated with tronger support for ratification, as are higher incomes and higher proportions of non-natives. The results are consistent with the view that European integration provides voters and taxpayers with a way to limit the influence of interest groups by shifting decisionmaking from a national to a supranational arena.

: Consumer advocates, proponents of wider use of market incentives in the health care sector, and some policy makers have called for greater price transparency. Price transparency implies that consumers can obtain price information easily, so they can usefully compare costs of different choices. Price transparency may also mean consumers understand how prices are set and are aware of price discrimination. In health care markets consumers often have difficulty finding useful price data. In particular, few consumers have a clear idea of what hospital stays or hospital-based procedures will cost, or understand how hospital charges are determined. The dispersion of prices for similar health care procedures is high, which suggests that these markets are not working well with respect to price outcomes, as would be expected in ordinary competitive markets. In addition, prices paid by different types of payers vary dramatically. On average, patients without insurance or who pay their own bills pay much more relative to what private insurers, Medicare, and Medicaid pay. Better price information might allow patients, either directly or through their physicians, to obtain better value for health care services. Several states and health insurers now provide online data on hospital costs. These price transparency initiatives, at least so far, have had little visible effect on pricing. Public pressure, which in some cases has caused hospitals to curtail aggressive bill collection tactics, might change hospitals and health care providers pricing behavior. This report will be updated as events warrant.

Disagreements about economic policy stem not just from differences in normative values, but also from differences in beliefs about which outcomes are likely. We review a selection of survey work showing this. We also report on our own work with US and Russian research subjects, which employs a combination of survey methods, psychometric measurement procedures and evidence-generating demonstrations drawn from experimental economics. Political ideology seems to be an important correlate of the positive economic beliefs of US, but not Russian, subjects. We discuss the implications of differing economic beliefs for economic policymaking, when ideology affects beliefs. However, we also find that non-economists can be persuaded that economic theories work when they see evidence to that effect.

People's beliefs about how well economic theory predicts outcomes may affect policy through democratic processes. Knowing what determines those beliefs is then important. We investigate how individual attitudes and characteristics correlate with those beliefs using a classroom Double Auction experiment, combined with a survey and ex-ante and ex-post elicitations of student beliefs. We find that Sex is a robust correlate of both ex-ante and ex-post beliefs: women are more skeptical than men in both instances. An index of socially desirable responding is positively related to prior belief in the theory: subjects who manage their image by telling Lies to please others also claim less skepticism on the ex-ante survey about the economic theory's predictive power. Subjects respond to Evidence in a minimally reasonable way: those who saw prediction errors in their experimental demonstration change their beliefs less between the ex-ante and ex-post surveys than those who saw none. While Trust-specifically, trust of authority-strongly correlates with Ideology, it is an insignificant predictor of beliefs. Finally, Ideology has complex effects on beliefs. As expected, the relatively liberal respondents are relatively more skeptical about economic theory in the ex-ante belief elicitation. Surprisingly, however, the relatively conservative respondents update beliefs in response to evidence much less strongly than their more liberal counterparts and, as a result, are actually relatively more skeptical than them in the ex-post belief elicitation. Acknowledgments. We have benefited from comments and help from Sarah Austin, Thilo Bodenstein, Dirk Engelmann, Jan Kmenta, Kathleen Knight, John Matsusaka, Andreas Ortmannand Christopher Wlezien, as well as seminar participants at the Public Choice/Economic Science Association meetings in San Antonio, Economic Science Association meetings in Barcelona and Tucson, the European Economic Association meetings in Venice, the California Institute of Technology, Technische Universität Chemnitz and the Max Planck Institut Strategic Interaction Group in Jena. Of course, none of these people are responsible for remaining errors or ambiguities.