Posts tagged papers
Posts tagged papers
The federal government is larger than conventional budget measures suggest. Many tax preferences are effectively spending programs. Adding these preferences to federal outlays and receipts makes the government appear about 4 percent of GDP larger. The 1986 tax reform cut these benefits, but they have since rebounded to a larger share of GDP than before. Using this broader measure of government size, many base-broadening reforms viewed as tax increases would be reclassified as spending cuts. Raising marginal tax rates would be recorded as a tax increase and a spending increase because it would boost the value of many tax preferences.
The health reform law boosted Medicare fees for primary care ambulatory visits by 10 percent for five years starting in 2011. Using a simulation model with real-world parameters, we evaluate the effects of a permanent 10 percent increase in these fees. Our analysis shows the fee increase would increase primary care visits by 8.8 percent, and raise the overall cost of primary care visits by 17 percent. However, these increases would yield more than a sixfold annual return in lower Medicare costs for other services—mostly inpatient and postacute care—once the full effects on treatment patterns are realized. The net result would be a drop in Medicare costs of nearly 2 percent. These findings suggest that, under reasonable assumptions, promoting primary care can help bend the Medicare cost curve.
All this suggests to us that further curtailing policy support now would – to return to the language of tradeoffs – have more costs than benefits. As St Augustine would have said had he been managing director of the IMF, there is a case for additional fiscal consolidation and monetary normalisation, but not yet.
The econometric consensus on the effects of social spending confirms a puzzle we confront in the raw data: There is no clear net GDP cost of high tax-based social spending on GDP, despite a tradition of assuming that such costs are large. The paper offers five keys to this free lunch puzzle. First, the costly forms of transfers usually imagined have not been practiced by real-world welfare states. Second, better tests confirm that the usually imagined costs would be felt only if policy had strayed out of sample, away from any actual historical experience. Third, the tax strategies of highbudget welfare states are more pro-growth and less progressive than has been realized. Fourth, the work disincentives of social transfers are so designed as to shield GDP from much reduction if any. Finally, we return to some positive growth and well-being benefits of the high social transfers, and suggest how democratic cost control relates to budget size.
File under “To read”