1. THE GEORGETOWN PUBLIC POLICY REVIEW | I
Spring Edition
Editor’s Remarks
Research
Forget Redistributing the Wealth:An Analysis of the Saver’s Credit from
the Perspective of the Low-Income Taxpayer
Harry M. Baturin, Esq................................................................................................1
The Great Recession and States as “Laboratories of Democracy”
Keith Boeckelman........................................................................................................9
Taxes As Fiscally Responsible Economic Stabilizers: Rethinking Automated
Fiscal and Formula Flexible Responses
Peter Cihon................................................................................................................19
Public Policy Lessons From Chile: Individuals with Disabilities – An
Untapped Talent Pool
Andrew Crawford Lange...........................................................................................29
Interviews
Interview with Congressman John Sarbanes
Campaign Finance Reform: Empowering Everyday Americans in an Era of
Big Money and Special Interests
Jamie Obal.................................................................................................................43
Interview with Amr Badr
Perception, Reality, and Politics ofTourism in Egypt
Jacob Patterson-Stein................................................................................................47
Interview with Professor Chris Blattman
Experimentation and Empowerment
Cristina Lopez G.......................................................................................................51
3. THE GEORGETOWN PUBLIC POLICY REVIEW | III
Editor in Chief Kristin Blagg
Executive Managing Editor Nora Gregory
Executive Print Editor, Rachel Spritzer
Graduate Thesis Edition
Executive Print Editor, Aaron Gregg
Spring Edition
Executive Online Editor Jacob Patterson-Stein
Executive Interview Editor Cristina Lopez G.
Executive Director, DavidThomsen
Data & Marketing
Executive Director, Jose Gonzalez Echevarria
Finance and Operations
Senior Print Editors Harry Baumgarten, Robin Duddy-Tenbrunsel, Jasmine Senior
Associate Print Editors Matt Denneny,Akshay Iyengar, Stephanie Keller, Ben King, Stephanie Landry,
Laura Wilson
Production Editor Ben King
Copy Editors Matt Denneny, Sacha Haworth, Stephanie Landry,Anthea Piong, Julie Ryan
Senior Online Editors Garrett Brinker, Kristine Johnston, Dennis Lytton, Manon Scales
Online Staff Samuel Abbot, Mychal Cohen, Nigel Cory, Michael Hirsch, Elizabeth King,
Emily Manna,Anna Potter, Max Rubinstein, Nicolae Stefanuta, BryanVengelen,
Rachel Wood, ShuyiYu
Senior Interview Editors Terrell Clifford, Dennis Lytton
Associate Interview Editors Matthew Cook, Dan Kinber, Jamie Obal, Miaomiao Shao
Senior Marketing Directors Ishan Bardhan, GPPR Online
Ruo Shuang, GPPR Print
Events Staff Nikki Edison, Executive Director of Events
Alexander Dutton, Senior Events Director, Policy Forums
Daniel Rossman, Senior Events Director, Fundraising
Faculty Advisor Robert Bednarzik
Special Thanks We would like to express our infinite gratitude to Mike Bailey, David Boyer,
Robert Bednarzik, Darlene Brown, Cristal Clark, Mary Denlinger, Matthew
Fleming, Carolyn Hill, Micah Jensen,Andreas Kern, Laura Masters, Lauren Mullins,
Ed Montgomery,Alice Rivlin, Mark Rom, Barbara Schone, Dean Sirjue,Adam
Thomas,Thomas Wei,Andrew Zeitlin, the GPPReview Alumni Board, the
Graduate Student Organization, the Georgetown Public Policy Student
Association, the McCourt School of Public Policy, and our faculty peer reviewers.
Interior Design & Layout Ben King and Nora Gregory
Cover Design www.acecreative.biz
Printer Print 1 Printing & Copying
5. THE GEORGETOWN PUBLIC POLICY REVIEW | V
Editor’s Remarks
This is the traditional spring edition of the nineteenth volume of The
Georgetown Public Policy Review. This year, we are pleased to feature
academic work from two Georgetown alumni as well as from authors
across the country, as well as interviews with current policy makers.
As The Review rounds out its first year as a part of the new McCourt
School of Public Policy, we have selected papers that present new
data, insights, and policy solutions for our discipline. This volume
spans a variety of thought-provoking topics, including tax policy,
state economic development, labor policies for those with disabilities,
and campaign finance reform. We hope our readers similarly find
this volume of The Georgetown Public Policy Review rewarding and
enlightening.
We begin this volume with the work of Harry M. Baturin, who
scrutinizes the implications of modifying the Saver’s Credit, a tax credit
for low- and middle-income taxpayers that is designed to create an
incentive to save for retirement. His analysis demonstrates that the
costs associated with converting the credit into a refundable benefit
could be mitigated by the present and future value that the credit would
provide to low-income individuals.
From federal tax policy we move to investigating state economic
development with author Keith Boeckelman. Dr. Boekelman’s paper
examines the question of whether the 2008 recession created a catalyst
for new state policy programs to spur economic growth. Interestingly,
his analysis of gubernatorial speeches from the period suggests a
period of relative stagnation. This work offers insights into the modern
condition of the so-called “laboratory of the states” and assesses the
political forces at work.
Returning to the tax code, Peter Cihon examines the merits of several
“formula flexibility” proposals. Focusing on a plan that would increase
high-end tax rates in times of high unemployment, he sheds light on
the benefits of countercyclical revenue stream as well as the potential
costs. Cihon also highlights the political implications of enacting a
flexible framework at the federal or state level.
Our last academic article, from Andrew C. Lang, examines the labor
force policies that Chile has enacted for individuals with disabilities.
Through his analysis of Chilean and international policy and statistics,
he sets forth a series of policy proposals that solidify employment
assistance for those with disabilities.
We then turn to our interview with US Congressman John Sarbanes
of Maryland, conducted by next year’s Executive Interview Editor,
Jamie Obal. Congressman Sarbanes visited Georgetown as part of
The Review’s Policy Forum on Campaign Finance. He discusses his
bill, the Government By The People Act (H.R. 20), and the prospects
of campaign finance reform in a world after Citizens United and
McCutcheon v. F.E.C.
6. VI | EDITOR'S REMARKS
Returning to international policy, our Executive Online Editor,
Jacob Patterson-Stein, interviews Amr Badr, a tourism operator and
philanthropist who speaks on the future of Egyptian tourism. Badr’s
decades-long experience in the region lends a new perspective on a
country in transition.
We also present Executive Interview Editor Cristina Lopez G.’s
conversation with Columbia University professor Chris Blattman. Dr.
Blattman discussed the success of the Women’s Income Generating
Support (WINGS) initiative in northern Uganda, and the use of new
media to spread ideas in international development.
This issue continues in The Review’s tradition of offering insightful and
rigorous policy analysis. We thank our authors—Baturin, Boeckelman,
Cihon, and Lang—for their work and their dedication throughout the
editing cycle
On behalf of The Review, I would also like to thank those members of
the MSPP community who assisted us in our efforts this year, including
Robert Bednarzik, our faculty advisor; Barbara Schone, MPP faculty
director, and those faculty members who assisted us in providing
faculty reviews.
I am incredibly fortunate to work with a remarkable group of peers,
who have all had a hand in working complete the spring edition of
The Review. This publication is the result of the dedication and talents
of Aaron Gregg and each member of our exceptional print and copy
editing teams.
Finally, I would like to extend special thanks to the Executive Team:
Nora Gregory, Jacob Patterson-Stein, Rachel Spritzer, Aaron Gregg,
Cristina Lopez G., David Thomsen, and Jose Gonzalez Echevarria.
Thank you for the inspiring leadership, dedication, and grit that you
demonstrate in tending to the many facets of The Georgetown Public
Policy Review. As The Review enters its twentieth year, I am confident
that you have contributed a lasting legacy.
Kristin Blagg
Editor in Chief
7. THE GEORGETOWN PUBLIC POLICY REVIEW | 1
Forget Redistributing the
Wealth
An Analysis of the Saver’s Credit from the
Perspective of the Low-Income Taxpayer
Harry M. Baturin, Esq
Abstract
T
ax policy is often viewed as the primary method
to encourage efficient financial behavior among the
population at large.Although the Internal Revenue
Code endeavors to provide incentives to build wealth among
all taxpayers, there are few such opportunities available to
low-income taxpayers.The Saver’s Credit is a tax incentive that
is directly applicable to low-income taxpayers, but structural
shortcomings cause it to fall short of its objectives of facilitating
savings and retirement planning for low-income taxpayers.This
article addresses the proposition that structural modifications
to the Saver’s Credit, including making it refundable, would
provide valuable financial benefits to low-income taxpayers,
lifting many out of poverty while simultaneously motivating
them to increase their earnings.
Harry M. Baturin, Esq
received an LL.M. in Taxation from
The Georgetown University Law
Center in 1999 and graduated
from The University of Pittsburgh,
Summa Cum Laude, in 1995 (B.S.)
and from its Law School in 1998
(J.D.). He is a Trustee and Manager
of a Charitable Trust and has a
background practicing in non-
profit, estates as well as business
and taxation law at Baturin and
Baturin Law Offices. He was a
Guest Instructor at the Penn State
University Dickinson School of Law
for the Elder Law Seminar with
Professor Katherine C. Pearson,
Esq., an Instructor at the Delaware
County Community College, and
a clerk at the Philadelphia Law
Department covering tax and real
estate issues prior to practicing.
8. I. INTRODUCTION
Tax policy has long been viewed as one
of the most effective and important
ways the United States government
can shape the financial behaviors and
activities of the population at large
(Feldstein 2008). Indeed, even as
economists debate the extent to which
tax policy should be utilized to pursue
“positive economic objectives,” or avoid
“harmful economic activities,” it is
generally agreed upon that “some role
for taxation [therein] is appropriate”
(Minarik). Although the Internal
Revenue Code (IRC) endeavors to
provide tax incentives for all taxpayers
to build wealth, there is little real
opportunity provided to low-income
taxpayers as compared to those with
moderate and high incomes (Center on
Budget and Policy Priorities (CBPP)
2014).
One tax incentive that is directly
applicable to low-income taxpayers,
however, is the Saver’s Credit.
This is a tax credit for low- and
moderate-income taxpayers who
make a voluntary contribution to
eligible retirement plans (Internal
Revenue Service (IRS) 2014).
Notwithstanding the legislative intent
of retirement savings promotion to
low-income taxpayers, the credit
is often inapplicable, complicated
to understand, and rarely results in
a tangible financial benefit to the
population it was designed to assist.
Accordingly, the Saver’s Credit misses
the mark with respect to achieving the
objectives of facilitating savings and
retirement planning for low-income
Americans.
This article discusses potential
modifications to the Saver’s Credit that
could improve the benefits received
by low-income taxpayers including,
converting it from a nonrefundable
tax credit to a refundable tax credit
(thus enabling the recipient to receive
a tangible cash refund in the event that
This article then addresses additional
changes that would enable the Saver’s
Credit to be better utilized by low-
income taxpayers, as well as the
potential arguments from opponents of
an expanded Saver’s Tax Credit.
II. THE CURRENT SAVER’S
CREDIT
In recent years, retirement savings have
become one of the most common types
of activities that the Internal Revenue
Code has attempted to promote. As
contributions to retirement plans have
been excludible from income and,
therefore, able to increase tax free for
years, these IRC promotions have led
to a swell of savings for taxpayers in the
highest tax brackets. The end result is
a “system [that] provides the smallest
immediate benefit to taxpayers who
face a zero or low marginal income
tax rate,” the taxpayers most in need
of increased savings to meet basic
retirement needs (Burman et al. 2004).
As such, low-income taxpayers end up
with a lower amount of tax savings and
an increasingly diminished incentive
to save for retirement and to build
wealth, resulting in a larger low-income
population that is both ill prepared
2 | BATURIN
9. THE GEORGETOWN PUBLIC POLICY REVIEW | 3
it is readily apparent that the credit
does not result in tax savings for many
low-income taxpayers. The study
showed that 57 million taxpayers had
incomes under the threshold income
limitation and yet only 20 percent
could receive a financial benefit from
the Saver’s Credit. As such, a mere
64,000 could receive the maximum
possible credit allowed by the Saver’s
Credit (Orszag and Hall 2003). The
simplest way to correct this structural
defect in the Saver’s Credit is to make
the credit refundable, allowing low-
income taxpayers to receive a check
when their tax liability is at zero and
there remains a credit amount owed to
the taxpayer.
B: ALLOW THE SAVER’S CREDIT
TO BE TRANSFERABLE FROM
YEAR TO YEAR
An additional structural shortcoming
of the Saver’s Credit is that it is non-
transferable. A taxpayer cannot
transfer the credit to subsequent tax
years and thus “loses” the credit if
she is unable to use it in her current
tax year. This is a significant problem
with the Saver’s Credit because most
taxpayers to whom it should apply
utilize other tax credits (not related
to savings) that will exhaust their
tax bill (IRS 2013). Moreover, the
frequent inability of many low-income
taxpayers to forecast if they will have
any tax liability combined with the
lack of transferability serve as a serious
disincentive for low-income taxpayers
to even bother with the Saver’s
Credit (Koenig and Harvey 2005).
Accordingly, enlarging the scope of
and poorly motivated for retirement
(Engen, Gale, and Uccello 1999; Iwry,
Orszag, and Gale 2004).
In light of this, the Saver’s Credit was
established, targeting to low-income
taxpayers. The credit was designed to
address the “upside-down” structure
of tax traditional savings incentives.
To be eligible, a taxpayer must have an
income below a certain threshold and
contributions are matched at higher
rates for savers in lower tax brackets.
However, extremely low visibility and
structural shortcomings ultimately
undermine the very purpose of the
credit (Busette and Eizenga 2012; Gale,
Iwry, and Orszag 2005; IRS 2014).
III. SAVING THE CURRENT
SAVER’S CREDIT:
THREE MODIFICATION
PROPOSALS
A: CONVERT THE SAVER’S
CREDIT FROM A NON-
REFUNDABLE CREDIT TO A
REFUNDABLE CREDIT
The most problematic shortcoming
of the Saver’s Credit is that it is non-
refundable. Thus, the Saver’s Credit
does not allow for low-income
taxpayers to receive the credit
after applying the credit against all
outstanding taxes, which often results
in a forfeit of the credit (IRS 2013;
Orszag and Hall 2003). This results in
a disproportionately large amount of
low-income taxpayers not receiving
any financial benefit from the Saver’s
Credit because they do not have any tax
liability to offset. Indeed, in a sampling
of taxpayers in a recent detailed study,
10. submit an IRS Form 8880, and this
extra bookkeeping precludes many
low-income taxpayers from using the
credit (IRS 2014). Finally, there is little
reference to the Saver’s Credit on any
IRS forms and taxpayers must read
deep into the instructions to even be
aware that the credit applies to them
(IRS 2013). A revised 1040 EZ with
prominent instructions regarding the
Saver’s Credit would help alleviate this
complication.
IV. ARGUMENTS AGAINST
EXPANSION OF THE
CURRENT SAVER’S CREDIT
The primary argument against the
expansion of the Saver’s Credit’s
refundability is that it would result in
an extraordinary cost to taxpayers in a
climate that is becoming increasingly
hostile to new or expanded tax
expenditures (Sugin 2011). The Tax
Policy Center estimates that making
the Saver’s Credit refundable would
cost approximately $29.8 billion over
11 years, or slightly less than $3 billion
annually (Busette and Eizenga 2012).
As such, a large-scale tax reform
package that raises revenue and
eliminates unnecessary deductions,
exemptions, and loopholes would
be the optimal way to pay for such
a large cost. A large-scale proposal
of this nature may likely include the
elimination of the deduction for
interest paid on home equity loans
in accordance with the National
Commission on Fiscal Responsibility
and Reform Plan (the Simpson-
Bowles Plan), coupled with additional
the Saver’s Credit by allowing it to be
transferable from year to year, subject
to robust reporting and informational
requirements, would be an effective
way to correct the current structural
ineffectiveness of the program.
C: INCREASE THE VISIBILITY OF
THE SAVER’S CREDIT
In addition to the credit’s structural
shortcomings, the Saver’s Credit does
not have enough public visibility.
Simply put, the great majority of
taxpayers who qualify for the credit are
not receiving it, and only 20 percent of
taxpayers with income under $50,000
are aware that the credit exists (TCRS
2011). Moreover, Koenig and Harvey
reviewed the Saver’s Credit in detail
after it was enacted and determined
that the “lack of knowledge for the
credit” had “substantially decreased”
the number of credits claimed. They
further found that 34 percent of eligible
taxpayers failed to claim nearly $500
million in credits and that 43 percent
of the claimed credits were, in fact,
limited by tax liability. In addition to a
lack of visibility, many taxpayers who
are aware of the Saver’s Credit do not
fully comprehend how to receive it
(Koenig and Harvey 2005).
As such, a significant outreach
program should be established with
simplified tax publications outlining
the Saver’s Credit and distributed
locally. A related concern with the
application of the Saver’s Credit is
that taxpayers cannot claim the credit
using the 1040 EZ Form (used by
many low-income filers). To claim the
Saver’s Credit, the taxpayer must also
4 | BATURIN
11. THE GEORGETOWN PUBLIC POLICY REVIEW | 5
taxpayers that would be affected are
of such high income that they would
be the least likely to be deterred (many
have paid off their home mortgages)
from making large scale home
purchases. Large home purchases are
important and economically beneficial
as well; hence, its effect on these large-
scale home purchases would have
to be studied in great detail. Fourth,
as for the limitation on home equity
loans, moderate and high income
taxpayer home owners would still
maintain much of their mortgage
interest deduction via first and second
mortgages (up to $500,000) and with
the current relatively low interest rates,
they would likely be able to refinance
their home equity loans if needed
(Toder 2013).
Although such tax expenditure
modifications may seem severe to those
select few who currently utilize both
the mortgage interest deduction and
the current Saver’s Credit, studies have
established that only 2.6 percent of tax
returns would be impacted (Busette
and Eizenga 2012). An added benefit to
a 50 percent matching credit, if utilized
in a large-scale reform package (as it
is often mentioned), is that it would
result in the reduction of taxes for
approximately ten percent of taxpayers
while increasing it for less than one
percent of taxpayers, with lower
income taxpayers receiving the largest
benefit (Marr and Highsmith 2011).
Notwithstanding the concerns that
are associated with the current Saver’s
Credit, philosophical and policy
arguments against enlarging the credit
exist beyond those based solely upon
mortgage interest deduction
restrictions (New York Times 2010). Of
course, in deciding whether to increase
or decrease a given tax expenditure, the
paramount concern is in ensuring that
the remaining tax expenditures provide
the greatest benefit to filers who will
actually utilize it and provide for the
greatest social good (Government
Accountability Office 2012).
In light of this, there are several
reasons why modifying the home
equity interest deduction may be a
less restrictive way to cover the costs
of converting the Saver’s Credit to a
refundable credit, both with respect
to its impact on the housing market
and to the financial well-being of those
taxpayers who have grown accustomed
to the deduction. First, there is a large
population of low-income taxpayers
who have not purchased their first
residence and, therefore, would not
be impacted by the reduction in the
home equity interest deduction or
additional mortgage interest deduction
restrictions inasmuch as they would
fall below the monetary limitations
(accordingly, there would be no
negative impact on the housing market
whatsoever for this population).
Second, current interest rates remain
low and, as a result, the mortgage
interest deduction, according to a
recent report by the Tax Policy Center,
although still impactful, has less effect
on housing costs and expenses, so
“[limiting] it would have less effect on
housing prices.”(Toder 2013). Third,
with the mortgage interest deduction
still being permitted in great degree
(with a $500,000 limitation), those
12. other countries. This reduced reliance
on Social Security could help pave
the way for much needed entitlement
reform. Importantly, this should appeal
to conservative and progressive tax
theorists in equal measure.
Lastly, opponents of any expansion
of the Saver’s Credit may raise the
argument that taxpayers aware of the
eligibility rules and the potential for a
cash refund payment beyond their tax
liability may “bunch” their adjusted
growth income (AGI) just below the
threshold in order to receive a higher
credit rate. The argument continues
that the steep decline in the credit
rates, pursuant to income limitations,
provides an additional incentive for
income “bunching” (Kotlikoff and
Rapson 2007). Indeed, a detailed
analysis of the Saver’s Credit indicates
that there is an increased likelihood
of bunching AGI by taxpayers who
have that option in order to receive the
credit. However, a more likely scenario
is that the credit, if advertised properly,
would serve to encourage those on the
margins who have determined that
participating in the labor market and
increasing their working hours is not of
relative benefit to them. There are many
low-income taxpayers on the threshold
of making decisions to save a portion
of their paycheck, increase their work
hours, or put their children in day care.
It has been shown that these taxpayers
have been positively (and deeply)
affected by “government matches” of
their retirement savings (Allegretto
2005).
Most importantly, just as the Earned
Income Tax Credit has helped to reduce
its expense. Opponents argue that
adding another refundable credit to
the current tax system would simply
enlarge an ever-expanding “welfare
system,” driving it closer towards
permanency with such a “high level
of benefits that it acts as a disincentive
to work” (Tanner and Hughes 2013).
Some go as far as to suggest that
“reducing welfare dependence and
rewarding work [will only happen by]
removing [refundable credits] and
exemptions” (Vance 2013).
However, the Saver’s Credit’s very
purpose is inapposite to welfare. In
order to even qualify for the Saver’s
Credit, low-income taxpayers must
make contributions to a designated
tax-preferred account necessarily
increasing their savings and building
wealth while simultaneously reducing
the potential that they will require
“welfare” assistance at some later time,
including during retirement (notably,
if left untouched, these savings will
compound greatly). This stands in
contrast to the majority of refundable
tax credits that do not correspond to
actual tax dollars paid by the taxpayer
and do not have any correlation
to a reduction in future need by
the taxpayer (IRS 2014; Library of
Economics and Liberty).
Furthermore, enabling taxpayers
to receive a refundable credit as
a consequence of their increased
savings (similar to moderate- and
high-income pension incentives)
helps establish a savings mentality.
It could also serve to reduce the
overall reliance on Social Security
at retirement age, as has occurred in
6 | BATURIN
13. THE GEORGETOWN PUBLIC POLICY REVIEW | 7
a Long Way.” Center for American Progress.
January. http://www.americanprogress.org/
issues/2012/01/pdf/small_change_savers_
credit.pdf.
Center of Budget and Policy Priorities. 2014.
“Policy Basics: The Earned Income Tax
Credit.” January 31. http://www.cbpp.org/
cms/?fa=view&id=2505.
Engen, Eric M., William G. Gale, and Cori E.
Uccello. 1999. “The Adequacy of Household
Saving.” http://ssrn.com/abstract=204770.
Feldstein, Martin. 2008. “Effects of taxes on
economic behavior.” National Tax Journal 61,
no.1: 131-139.
Gale, William G., J. Mark Iwry, and Peter R.
Orszag. 2005. “Improving Tax Incentives
for Low-Income Savers: The Savers Credit.”
Tax Policy Center. June. http://www.
taxpolicycenter.org/UploadedPDF/411177_
TPC_DiscussionPaper_22.pdf.
Government Accountability Office. 2012. Tax
Expenditures: Background and Evaluation,
Criteria and Questions. http://www.gao.gov/
assets/660/650371.pdf.
Internal Revenue Service. 2013. “Plan Now to Get
Full Benefit of Saver’s Credit; Tax Credit Helps
Low- and Moderate-Income Workers Save for
Retirement.” December 11.
http://www.irs.gov/uac/Newsroom/Plan-Now-
to-Get-Full-Benefit-of-Saver%E2%80%99s-
Credit.
Internal Revenue Service. 2014. “Retirement
Topics - Retirement Savings Contributions
Credit (Saver’s Credit).” April 2. http://
www.irs.gov/Retirement-Plans/Plan-
Participant,-Employee/Retirement-Topics-
Retirement-Savings-Contributions-Credit-
(Saver%E2%80%99s-Credit).
Iwry, J. Mark, Peter R. Orszag and William G.
Gale. 2004. “The Saver’s Credit: Issues and
Options.” Brookings Institute. http://www.
brookings.edu/research/papers/2004/04/
saving-gale.
Koenig, Gary and Robert Harvey. 2005.
“Utilization of the Saver’s Credit: An Analysis
of the First Year.” National Tax Journal 58, no.
4: 787-806. http://ntj.tax.org/wwtax/ntjrec.nsf
/2E7089EBD459F4E1852570F2006E3F3C/$FI
LE/Article%2008-Harvey.pdf.
poverty while simultaneously helping
to “expand the number of [taxpayers]
contributing to the economy by
causing many additional Americans
to participate in the labor force and
causing others to work more hours,” as
reported by Looney and Greenstone
of The Brookings Institution and
MIT respectively, a refundable Saver’s
Credit could help lift even more out
of poverty while simultaneously
motivating them to increase their
earnings. These taxpayers would likely
put themselves in the best possible
position to increase their earnings so
that they could take advantage of all
of the retirement savings options that
a properly designed and adequately
advertised Saver’s Credit would
provide. The economic stabilization
and financial benefit that would be
afforded these taxpayers through
establishing increased savings patterns
early on, coupled with tax-free earnings
in a retirement or pension program
via a reformed Saver’s Credit, would
serve as a much needed boost towards
economic security in retirement for a
population much in need.
V. REFERENCES
Allegretto, Sylvia A. 2005. “Working families’
incomes often fail to meet living expenses
around the U.S.” Economic Policy Institute.
August 30. http://www.epi.org/publication/
bp165/.
Burman, Leonard E., William G. Gale, Matthew
Hall, and Peter Orszag. 2004. “Distributional
Effects of Defined Contribution Plans and
Individual Retirement Accounts.” Tax Policy
Center. August 19. http://taxpolicycenter.org/
publications/url.cfm?ID=311029.
Busette, Camille and Jordan Eizenga. 2012. “A
Small Change to the Saver’s Credit Can Go
14. Vance, Laurence M. 2013. “Tax Credit or Income
Transfer.” The New American. March 22.
http://www.thenewamerican.com/economy/
economics/item/14800-tax-credit-or-income-
transfer.
Kotlikoff, Laurence J., and David Rapson. 2007.
“Does It Pay, at the Margin, to Work and
Save? Measuring Effective Marginal Taxes on
Americans’ Labor Supply and Saving.” In Tax
Policy and the Economy, Volume 21, ed. James
M. Poterba. MIT Press. http://www.nber.org/
chapters/c0048.pdf.
Library of Economics and Liberty. “Compound
Interest.” http://www.econlib.org/library/
Topics/HighSchool/CompoundInterest.html
Marr, Chuck, and Brian Highsmith. 2011.
“Reforming Tax Expenditures Can Reduce
Deficits While Making the Tax Code More
Efficient and Equitable.” Center on Budget and
Policy Priorities. April 15. http://www.cbpp.
org/cms/?fa=view&id=3472.
Minarik, Joseph J. “Taxation.” Library of
Economics and Liberty. http://www.econlib.
org/library/Enc/Taxation.html.
New York Times. 2010. “In a 11-7 Tally, the
Fiscal Commission Falls Short on Votes.”
December 3. http://www.nytimes.com/
interactive/2010/12/03/us/politics/deficit-
commission-vote.html?_r=0.
Orszag, Peter R., and Matthew G. Hall. 2003.
“The Saver’s Credit.” Tax Policy Center.
June 9. http://www.taxpolicycenter.org/
UploadedPDF/1000498_TaxFacts_060903.pdf.
Sugin, Linda. 2011. “Tax Expenditures, Reform,
and Distributive Justice.” Columbia Journal of
Tax Law 3, no. 1. http://ir.lawnet.fordham.edu/
faculty_scholarship/60/.
Tanner, Michael, and Charles Hughes. 2013.
“The Work versus Welfare Trade-Off.” Cato
Institute. August 19. http://www.cato.org/
publications/white-paper/work-versus-
welfare-trade.
Toder, Eric J. 2013. “Options to Reform the
Home Mortgage Interest Deduction” April 25.
Testimony Before the House Ways and Means
Committee. http://www.taxpolicycenter.org/
UploadedPDF/1001677-Toder-Ways-and-
Means-MID.pdf
Transamerica Center for Retirement Studies.
2011. “Few Workers Aware of Federal Income
Tax Retirement ‘Saver’s Credit.’” January
20. http://www.businesswire.com/news/
home/20110112005357/en/CORRECTING-
REPLACING-Workers-Aware-Federal-
Income-Tax#.U0YJZq1dVvd.
8 | BATURIN
15. THE GEORGETOWN PUBLIC POLICY REVIEW | 9
The Great Recession and
States as “Laboratories of
Democracy”
Keith Boeckelman
Abstract
T
his paper asks whether states acted as “laboratories of
democracy” in the aftermath of the Great Recession.
Using governors’ speeches as a measure of the state
policy agenda, I examine whether new ideas about economic
development emerged between 2011 and 2013. In general, I
find that there has been no clear break with the past, although
a few new ideas did appear, such as capitalizing on the green
energy economy and promoting job programs for returning
veterans. Some partisan differences in the policies governors
advocated appeared, especially concerning the desirability
of low taxes and limiting government regulations, which
received more support in Republican speeches. Few governors
questioned the dominant frame of the issue that equates
economic development with job creation, and there was
little populist economic rhetoric.The findings support recent
research casting doubt on the veracity of the laboratories of
democracy metaphor.
Keith Boeckelman is Professor
and Chair of the Department of
Political Science at Western Illinois
University. His research focuses on state
politics and policy, especially in the
areas of economic development and the
environment.
16. rhetoric is not policy, examining it is
worthwhile because rhetorical change
and policy change are intimately
connected, with rhetoric serving as
an indicator of governors’ agendas
(Baumgartner and Jones 1993).
The time period of the study was
chosen for economic and political
reasons. Economically, in early 2011,
the downturn was three years old
with few signs of ending (although
a turnaround occurred in the later
years examined for this article).
Meanwhile, federal stimulus spending
was beginning to wind down, leaving
the states in a more precarious fiscal
position. Political science research on
agenda-setting suggests that major
focusing events, such as the Great
Recession, set the stage for new ideas
and approaches for addressing public
problems to emerge (Kingdon 1984;
Baumgartner and Jones 2002).
The next section of the paper
provides a background on economic
development policy and paradigms
based on prior research. This literature
provides a baseline understanding of
previous program choices. Then, for
the purposes of comparison, I examine
official rhetoric of the recent past to
determine whether a new framework
has emerged since the Great Recession.
The findings suggest that, despite the
presence of an apparent economic and
political inflection point, only a few
new policy ideas appeared. Perhaps
equally significant, many economic
development ideas from the 1980’s
linger on the policy agenda.
I. INTRODUCTION
The states have long enjoyed a
reputation as “laboratories of
democracy,” whereby effective policy
experiments can spread through a
process of diffusion, including in the
area of economic development policy
(Rivlin 1992). In this realm, states
have a long record of innovation, most
recently in response to the stagnation
of the late 1970’s and early 1980’s, when
governors developed new approaches
to improving economies in their
states (Osborne 1988; Fosler 1988;
Eisinger 1988). This article considers
whether new ideas about economic
development have emerged as states
dealt with the economic downturn
following the financial crisis of
2008, known as the Great Recession.
More specifically, it asks whether
governors’ economic agendas changed
in the aftermath of the downturn in
comparison to standard economic
development practices described in
past literature on this subject. If agenda
change occurred, it set the stage for
horizontal policy diffusion among
states.
Governors are the focus of the
analysis because they play a key role
in formulating economic development
policy (Hart 2008). In this paper,
their agendas are measured through
an analysis of rhetoric from State of
the State addresses between 2011 and
2013. These speeches are particularly
good indicators of governors’ priorities
because of their role in shaping
the upcoming legislative session
(Heidbreder and Scheurer 2013). While
10 | BOECKELMAN
17. THE GEORGETOWN PUBLIC POLICY REVIEW | 11
It is hard to measure directly the
extent to which states emphasize these
different tactics. Clarke and Saiz (1996)
argue that, by the 1990’s, states had
shifted toward more entrepreneurial
policies, at the expense of locational
approaches. However, expenditure-
based analyses suggest that locational
tactics still dominate (Bartik 2005).
Economic conditions may also shape
policy preferences, as states with high
unemployment appear less likely to
adopt entrepreneurial strategies (Saiz
2001). Moreover, states cut budgets
for entrepreneurial approaches during
the recession of the early 1990’s (Clark
and Montjoy 2001). On the other
hand, Taylor (2012) argues both that
governors are more likely to advocate
locational policies when the economy is
improving, and that relative economic
position has little effect. Competition
among nearby states also tends to
reinforce locational approaches,
particularly targeted tax and financial
incentives (Saiz 2001).
There is a long-running debate about
the effectiveness of various policies.
In support of locational initiatives,
a number of studies suggest that
higher overall tax rates are negatively
associated with employment levels
and economic growth (Wasylenko
1997; Reed 2009). Research on tax
incentives shows that they provide
some economic benefits because
businesses are becoming less location-
bound, but that state policymakers
often overestimate their impact (Bartik
2005). At the same time, overreliance
on incentive-based strategies
undermines the tax base that develops
II. BACKGROUND
States have acted as laboratories
of democracy in the economic
development realm in the past. Before
WWII, for example, southern states
conceived a model emphasizing the use
of tax incentives to attract businesses
(Cobb 1993). This approach spread
to other states in the postwar period.
In the wake of the economic turmoil
of the 1970’s and early 1980’s, ideas
about economic development began
to shift again (Osborne 1988; Fosler
1988; Eisinger 1988). Governors in
office during this era developed a “new
paradigm,” emphasizing market-based
growth strategies, restraint in the use
of incentives, and public investment
(Osborne 1988).
As economic development strategies of
the 1970’s and 1980’s evolved, scholarly
accounts emerged to categorize
various policies. Eisinger (1988),
for example, distinguishes between
“supply-side” and “demand-side”
approaches. Clarke and Saiz (1996)
make a similar distinction between
“locational” approaches that try to
attract businesses through reducing the
costs of production, including taxes
and regulation, and “entrepreneurial”
strategies that emphasize fostering
innovation and improvements in the
production process. Examples of the
latter are efforts to target particular
industries, especially to promote high
value industry “clusters,” as well as
job training initiatives, small business
incubators, venture capital financing,
and export promotion (Eisinger 1988).
18. although some combine them with
Budget Addresses (e.g. Illinois, Iowa,
and Maine in 2011, Arkansas in 2012)
or substitute inaugural addresses if they
are newly elected (e.g. Connecticut,
Massachusetts, New Hampshire,
Oregon, and Vermont in 2011,
Louisiana in 2012, New Hampshire
and Washington in 2013). This section
focuses on the 139 speeches that 54
governors gave between 2011 and 2013.
Governors who did not address their
legislature in a particular year were not
included. Also, the 2011 Arizona State
of the State speech was omitted because
it did not address policy matters, as it
was delivered immediately after the
shooting of Congresswoman Gabrielle
Giffords. After reading the speeches, I
listed the policies that each governor
advocated in the context of promoting
economic development. I did not try
to measure level of emphasis governors
placed on a particular policy, but
simply coded whether it was advocated
as a desirable policy at least once.
The table below provides an overview
of the most common policies governors
extolled, both as a group, and broken
down by party. The partisan breakdown
is included because governors may
be more receptive to adopting
innovations from those in their own
party. The party calculations exclude
the speeches by Rhode Island Governor
Lincoln Chafee, who was elected as an
independent. Of the total 139 speeches
analyzed, 82 are by Republicans and 54
by Democrats. 47 speeches were from
2011, 44 from 2012, and 48 from 2013.
Low taxes are the most common policy
proposed, followed by infrastructure
an educated and trained workforce that
businesses need to stay competitive in
a global economy (Clark and Montjoy
2001).
The impact of entrepreneurial policies
is difficult to measure, although
there is at least limited evidence of
an economic payoff, albeit relatively
modest (Bingham and Bowen 1994;
Hart 2008). Entrepreneurial policies
have less political appeal because
their costs appear immediately, but
benefits typically occur over the longer
term (Brace 2002). Nevertheless, by
the mid-2000’s, there appeared to be
a consensus among governors that
entrepreneurial policies that focus on
targeting research and development
and building workforce skills were the
best economic development policies
(Bayard 2006).
In any event, the improving economic
climate of the 1990’s led some states to
downplay economic development in
favor of other policy concerns. Perhaps
as a result, innovation in economic
development policy stagnated. Some
new ideas emerged about how local
economies function, such as the
importance of nurturing a cadre
of “creative class workers” (Florida
2002). Meanwhile, the financial crisis
of 2008 and the subsequent period
of high unemployment set the stage
for economic issues to return to the
governmental agenda.
III. STATE OF THE STATE
SPEECH ANALYSIS
Most governors give annual State of
the State speeches early each year,
12 | BOECKELMAN
19. THE GEORGETOWN PUBLIC POLICY REVIEW | 13
rhetoric expressed these basic ideas.
The locational index included low
taxes, reducing business regulations,
and tax or financial incentives, while its
entrepreneurial counterpart consisted
of industry targeting, small business
initiatives, job training, and support
for infrastructure. Overall, governors
advocated an average of 1.4 locational
policies and 1.8 entrepreneurial
policies in their State of the State
addresses. Republican governors
advocated 1.7 locational policies on
average, while Democrats put forth 1.0,
a statistically significant difference (t=
-5.817, p < .000). For entrepreneurial
policies, Democrats averaged 1.9 and
Republicans averaged 1.7, which was
not a statistically significant difference.
The premise of this article is that
economic trouble should lead
governors to advocate new economic
development policy ideas. While that
does not necessarily appear to be the
case, it is worth examining whether
states’ economic conditions correlated
with rhetoric. To examine this, I
correlated policies advocated each year
improvements, targeting a particular
industry, reducing business regulations,
small business initiatives, and using
financial or tax incentives to attract
business. Many of these policies are
familiar, and are similar to those
that governors advocated a quarter
century ago. The most-mentioned
“new” approach involved fostering
green or alternative energy-based
economic development, although
it could be viewed as a variation on
the targeting strategy. The table also
shows some apparent differences
between Republican and Democratic
approaches to economic development.
As indicated in the table, these
variations were statistically significant
for low taxes, reducing regulations,
and alternative/green energy, with the
first two being more popular among
Republicans and the latter among
Democrats.
Since many of the policies governors
advocated reflected the locational or
entrepreneurial approaches previously
discussed, I developed an index that
assessed the extent to which their
Economic Development Policies Advocated in 2011-2013 State of State Addresses
Total Republican Democrat % Gap R - D
Low Taxes 94 (68%) 74 (90%) 18 (33%) 57**
Infrastructure Improvements 80 (58%) 46 (56%) 31 (57%) -1
Targeting Industry/Sector 63 (45%) 35 (43%) 26 (48%) -5
Reducing Business Regulations 60 (43%) 43 (52%) 17 (31%) 21**
Job Training Initiatives 59 (42%) 32 (39%) 26 (48%) -9
Small Business Initiatives 55 (40%) 31 (38%) 23 (43%) -5
Using Tax or Financial Incentives 43 (31%) 24 (29%) 19 (35%) -6
Green/Alternative Energy
Economy
34 (24%) 12 (15%) 22 (41%) -26**
** p < .01
20. zones and right-to-work laws, were
not mentioned much, even though
a few states, such as Indiana and
Michigan, adopted the latter during the
time period under discussion. More
generally, there is some evidence that
tax incentive policies, a central feature
of economic development policy
since the 1930’s, may be falling out
of favor. Not only were they only the
seventh most popular policy approach
overall, but the number of governors
advocating for them dropped
dramatically between 2011 and 2013,
from 22 to six. Increases occurred in
the number of governors advocating
for small business, job training, and
targeting.
On the other hand, by 2012-2013,
some new economic policy ideas were
beginning to emerge, such as programs
targeting veterans. Four governors
in 2012 and eight in 2013 called for
special economic development or
jobs initiatives for this group. Four
governors advocated reforming the
state’s tax code as a means of economic
development, although the specifics
differed dramatically. For example,
Bobby Jindal of Louisiana advocated
eliminating the income tax and
replacing it with a higher sales tax and
tax on services, while Deval Patrick of
Massachusetts called for reducing the
sales tax and increasing the income tax.
Moreover, many governors tried to tie
seemingly tangentially related issues
to “economic development” or “jobs,”
such as implementing Obamacare (Jay
Nixon in Missouri), adopting same
sex marriage (Maggie Hassan in New
Hampshire and Lincoln Chafee in
with the previous year’s unemployment
rate. This proxy was chosen for its
political visibility. In general, few
of the coefficients were statistically
significant. The only exceptions were
in 2013, when advocating small
business programs (r = .338) and the
entrepreneurial policy index (r = .293)
were statistically significant correlates
of unemployment.
Most of the proposals governors
elaborated in their State of the
State addresses related to jobs. Two
exceptions were Governor Kitzhaber
of Oregon and Governor Quinn
of Illinois. The former advocated
increasing “Oregon’s per capita
personal income to a level above the
national average” (Kitzhaber 2012). The
latter called for the “parents of Illinois
to have a decent wage, and...to have a
good, middle class standard of living”
(Quinn 2011). Seven governors in
2012 and three in 2013 advocated for
“quality jobs.”
IV. DISCUSSION
Did the states act as “laboratories of
democracy” in the wake of the Great
Recession? The answer is equivocal,
but probably more “no” than “yes.” If
states had acted more as laboratories
of democracy, more new ideas should
have been evident in governors’
speeches. In general, the rhetoric of
the governors deviated little from
mainstream policy ideas of the past.
Except for green economy initiatives,
most of the policies advocated were
prominent 25 years ago. Admittedly,
some past favorites, such as enterprise
14 | BOECKELMAN
21. THE GEORGETOWN PUBLIC POLICY REVIEW | 15
Quinn of Illinois, Sandoval of Nevada,
and Herbert of Utah) advocated
such an idea. The idea of nurturing a
“creative class” of workers, an economic
development idea promoted by Florida
(2002) that received great attention in
the early part of the 21st
century, was
mentioned by only one governor, John
Hickenlooper of Colorado.
Another approach suggests that it is
necessary to cooperate across state
lines to encourage regional economic
solutions, as the locus of competition
has shifted to the national and
international level (Lombard and
Morris 2010; Longworth 2010). The
only governor to advocate for this
type of cooperation in a State of the
State address was Oklahoma’s Mary
Fallin, who discussed a program she
was spearheading with governors from
Colorado governor and other states
to promote the natural gas economy
by purchasing vehicles that used
the fuel for state fleets (Fallin 2012).
Overall, the rhetoric of competition
was much more apparent in the
speeches analyzed. In other words,
when potential economic regions are
subdivided more or less arbitrarily
by state borders, each of which elects
a governor whom the public holds
accountable for economic performance,
competition is more likely than
cooperation. Two examples illustrate
this point. First, Governor Mary Fallin
said in her 2011 State of the State
speech, “[Texas] Governor Perry told
me he’s been using some scare tactics in
Texas. He’s been telling legislators they
had better get busy and pass his pro-
business reforms because Oklahoma
Rhode Island) and fighting drug use
(Earl Ray Tomblin in West Virginia).
Despite the depths of the recession,
little populist economic rhetoric
emerged, suggesting that governors
may be reluctant to even consider
some potential experiments in the
laboratories of democracy. There were
exceptions, however. One was Montana
Governor Steve Bullock (2013) who
argued that, “we are more likely to
create jobs if we invest in working
families, small businesses, farmers,
ranchers, and students… Some
disagree with me. They believe we’d
be better off if we focused on helping
multi-national corporations that have
their headquarters in Pennsylvania, a
post office box in Delaware, bankers
on Wall Street, and lobbyists in Helena
and Washington.” Along somewhat
similar lines, three governors in
2013 advocated “buy the state” or
“hire the state” initiatives, which
could be construed as anti-market
protectionism.
Over the past several years, policy
intellectuals have suggested new
approaches to economic development
but few policies seem to have been
adopted into the broader discourse by
gubernatorial candidates or governors.
For example, Katz (2010) argues
that governors need to create “jobs
councils, composed of corporate,
civic, university, and state and local
leaders to quickly develop a home
grown vision for state growth.” In
addition, he argues for a “jobs cabinet”
to coordinate state efforts in the area
of economic development. Only a
few governors (Markell of Delaware,
22. in the use of incentives. Newer
approaches may be emerging, but they
are advocated by few governors. There
are also some differences in emphasis
between Republicans and Democrats,
with the biggest variation being the
relatively greater Republican emphasis
on low overall tax rates as the key to
prosperity.
Why, then, did states fail as
“laboratories of democracy?” Perhaps
not enough time has passed, although
there seemed to be more evidence of
innovation in the later years under
consideration. Alternatively, the
metaphor itself may be flawed, as
adopting new ideas may depend more
on issue type, state characteristics,
time pressures, and political/electoral
considerations than on “effectiveness”
(Boushey 2010; Karch 2007). As
Boushey (2010, 29) writes, “the notion
that states act as independent policy
laboratories…presents a somewhat
unrealistic understanding of policy
learning and diffusion, as the
pressures generated by activists and
interest groups lead to innovations
being adopted across state lines
before decision makers have had the
opportunity to evaluate the costs,
benefits, and implications of a policy
experiment.” In other words, the
dynamics of politics differ from those
of the laboratory in the sense that in
the former, the results of experiments
should be relatively clear, while in
the latter, contested interpretations
are much more central. New policy
approaches exist, but the political
incentives seem to be lacking for
governors to advocate or try them.
and Mary Fallin are nipping at his
heels.” Similarly, Wisconsin Governor
Scott Walker (2011), speaking of
Illinois’ recent tax increase claimed
that “states, including our own, which
are committed to holding the line on
spending, began circling Illinois as
soon as the tax increase passed.”
Nevertheless, some governors did
challenge the “competitiveness”
narrative. For example, Minnesota
Governor Mark Dayton (2013)
ridiculed his neighbor, noting that
“Wisconsin, which by the way is open
for business…their unemployment
rate last month was 20% higher than
ours, while our per capita income was
12% higher than theirs.” Also in 2013,
Connecticut Governor Dannel Malloy
(2013) questioned the competitive
framework, stating, “Recently there’s
been a national conversation about
economic development, about whether
it makes any sense to have states
competing against one another for
jobs,” before conceding “we can’t simply
stick our heads in the sand or simply
hope for the best. Not when other
states are actively recruiting jobs from
every corner of the globe.”
V. CONCLUSION
Examining gubernatorial rhetoric
suggests that, although there may be
some shifts in emphasis, by and large
economic development paradigms of
the 1980’s persist. For example, within
the locational paradigm, support for
low overall tax rates is more evident
than for specific tax incentives. Some
governors have also called for reforms
16 | BOECKELMAN
23. THE GEORGETOWN PUBLIC POLICY REVIEW | 17
Fallin, Mary. 2011. Oklahoma State of the State
Address. www.ok.gov. (February 7).
Fallin, Mary. 2012. Oklahoma State of the State
Address. www.ok.gov. (February 6).
Florida, Richard. 2002. The Rise of the Creative
Class. New York: Basic Books.
Fosler, R. Scott. 1988. The New Economic Role
of the American States New York: Oxford
University Press.
Hart, David M. 2008. “The Politics of
‘Entrepreneurial’ Economic Development
Policy of States in the U.S.” Review of Policy
Research 25:149-168.
Heidbreder, Briane and Katherine Felix Scheurer.
2013. “Gender and Gubernatorial Agenda.”
State and Local Government Review 45:3-13.
Karch, Andrew. 2007. Democratic Laboratories:
Policy Diffusion among the American States.
Ann Arbor: University of Michigan Press.
Katz, Bruce. 2010. “Governing for Growth.”
www.newrepublic.com (September 18).
Kingdon, John C. 1984. Agendas, Alternatives,
and Public Policies. New York: HarperCollins.
Kitzhaber, John. 2012. “Oregon State of the State
Address.” www.oregon.gov (January 13).
Lombard, John R., and John C. Morris. 2010.
“Competing and Cooperating Across State
Borders: A Call for ‘Coopertition.’” State and
Local Government Review: 42: 73-81.
Longworth, Richard C. 2010. Caught in the
Middle: America’s Heartland in the Age of
Globalism. New York: Bloomsbury.
Malloy, Dannel P. 2013. 2013 State of the State
Address. www.governor.ct.gov (January 9).
Osborne, David. 1988. Laboratories of Democracy
Cambridge: Harvard Business School Press.
Quinn, Pat. 2011. “Illinois Budget Address.”
www.stateline.org (February 16).
Reed, Robert. 2009. The Determinants of U.S.
State Economic Growth: An Extreme Bounds
Analysis.” Economic Inquiry 47:685-700.
Rivlin, Alice. 1992. Reviving the American Dream:
The Economy, the States, and the Federal
Government. Washington, D.C.: Brookings.
VI. REFERENCES
Bartik, Timothy. 2005. “Solving the Problems of
Economic Development Incentives.” Growth
and Change 36: 139-166.
Baumgartner, Frank R., and Bryan D. Jones.
1993. Agendas and Instability in American
Politics. Chicago: University of Chicago Press.
Baumgartner, Frank R., and Bryan D. Jones, eds.
2002. Policy Dynamics. Chicago: University of
Chicago Press.
Bayard, Madeline. 2006. “Enhancing
Competitiveness: A Review of Recent State
Economic Development Initiatives – 2005”
National Governors’ Association Issue Brief.
Washington: National Governor’s Association.
Bingham, Richard E., and William M. Bowen.
1994. The Performance of State Economic
Development Programs. Policy Studies Journal
22: 501-513.
Boushey, Graeme. 2010. Policy Diffusion
Dynamics in America. New York: Cambridge
University Press.
Brace, Paul. 2002. Mapping Economic
Development Policy Change in the American
States. The Review of Policy Research 19:161-
178.
Bullock, Steve. 2013. “Montana State of the State
Address.” www.governor.mt.gov/news.as.px
(January 30).
Clark, Cal, and Robert S. Montjoy. 2001.
“Globalization’s Impact on State-Local
Economic Development.” Policy Studies
Review18:5-12.
Clarke, Susan E. , and Martin R. Saiz. 1996.
“Economic Development and Infrastructure
Policy” in Politics in the American States,
edited by Virginia Gray and Herbert Jacob.
Washington: CQ Press.
Cobb, James C. 1993. The Selling of the South: The
Southern Crusade for Industrial Development,
1936-1990. Urbana: University of Illinois
Press.
Dayton, Mark. 2013. State of the State Speech.
www.governing.com. (February 6).
Eisinger, Peter. 1988. The Rise of the
Entrepreneurial State. Madison: University of
Wisconsin Press.
24. Saiz, Martin. 2001. “Politics and Economic
Development: Why Governments Adopt
Different Strategies to Induce Economic
Growth.” Policy Studies Journal 29:203-214.
Taylor, Charles D. 2012. “Governors as Economic
Problem Solvers: A Research Commentary.”
Economic Development Quarterly 26:267-276.
Walker, Scott. 2011. Wisconsin State of the State
Address.” www.stateline.org. (February 1).
Wasylenko, Michael. 1997. “Taxation and
Economic Development: The State of the
Economic Literature. New England Economic
Review (March/April):37-52.
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25. THE GEORGETOWN PUBLIC POLICY REVIEW | 19
Taxes As Fiscally Responsible
Economic Stabilizers
Rethinking Automated Fiscal and Formula Flexible
Responses
Peter Cihon
Abstract
T
his paper discusses a modification in the tax code to
automate cyclical changes in tax rates in response to
economic conditions, a concept known as “formula
flexibility.”The concept first emerged alongside Keynesian
fiscal policy in the mid-twentieth century. In light of the
Great Recession and congressional budget crises, it is time
to reconsider formula flexibility.This paper proposes several
formula flexible proposals, the central proposal being a three-
percentage point increase in marginal rates for the top two
federal income tax brackets.This increase would be triggered
automatically at a threshold of five percent unemployment.
Such a measure would raise additional revenue while
minimizing its collection’s adverse economic effects.This
revenue could pay down debt accrued from efforts to combat
the Great Recession and fund future countercyclical fiscal
efforts.This policy constitutes back-loaded austerity, which
would establish financial credibility and would, by virtue of
automation, reduce policy uncertainty in the future.
Peter Cihon is a sophomore
at Williams College. He would like
to thank Professor David Love,
Professor Sara LaLumia, and Ian
Phillips for their advice and support.
26. I. INTRODUCTION
Despite deep-seated political disputes
surrounding long-term tax and
spending policies, both Democrats and
Republicans favored deficit spending
to fight the Great Recession. However,
there was considerable disagreement
as to what form this deficit spending
should take. Republicans claimed
the Bush tax cuts led the country out
of recession in the early 2000’s and
advocated its use during the stimulus
debate, while Democrats favored direct
government spending on infrastructure
and aid to state governments.
Ultimately, the federal response to the
Great Recession included both tax
cuts and government spending. Both
policies expanded the deficit. As is
generally the case during recessions,
the federal government engaged in
deficit spending in the absence of a
concrete plan to finance these efforts.
In the aftermath, deficit hawks have
pressed for immediate government
spending cuts, a potentially dangerous
remedy. Japan’s “Lost Decade” provides
an illustrative example of how pursuing
deficit-reduction measures before the
economy has returned to sustained
growth can stymie a recovery. The
Japanese passed a stimulus package
in 1995 only to cut expenditures and
increase taxes in subsequent budgets.
Posen (1998) summarizes the results:
This reversal from the solid
growth of 1996 can only be
attributed to the Japanese
government’s fiscal policy,
including carrying through the
consumption tax rise regardless
of the consequences, because just
as in 1995 [and] 1996, no other
significant factors changed during
this period.
In the U.S., the budgetary caps known
as the “sequester” have been the
response to these fiscal fears, and as
a result the country faces a slowing
recovery.1
Instead, deficit reduction
measures should be back loaded or
implemented once the economy has
fully recovered. Reforming the tax
code to create an automated formula
flexible income tax would establish a
fiscally responsible framework to fight
recessions, raising revenue during
periods of high economic growth
that would fund deficit spending
during downturns. An automated
formula flexible framework ties
changes in the tax code to changes in
economic conditions. This system has
nonpartisan appeal; it is applicable to
a progressive tax or flat tax and may
fund government spending or tax cuts.
In a 1944 white paper on employment
policy, the British Government
proposed an employment insurance
system that adhered to this concept:
[A] scheme for varying, in
sympathy with the state of
employment, the weekly
contribution to be paid by
employers and employed under
the proposed new system of
social insurance. The standard
1
Congressional Budget Office, Economic Effects
of Policies Contributing to Fiscal Tightening in
2013 (2012): 1. “Output would be greater and
unemployment lower in the next few years if
some or all of the fiscal tightening scheduled
under current law...was removed.”
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27. THE GEORGETOWN PUBLIC POLICY REVIEW | 21
it performs a similar function to
monetary policy in downturns, in
boom times formula flexibility is
uniquely suited to raise tax revenue in
addition to maintaining output at its
long-term potential.
The recent government shutdown and
its contractionary effects show the
benefits of an automated response;
political conflicts over fiscal policy
exacerbate uncertainty during
recessions and subsequent recoveries
(Baker, Bloom, and Davis 2013).
By automating fiscal responses, an
automated formula flexible tax would
remove politics from fiscal debates
precisely when uncertainty would
do the most damage. In addition to
reducing uncertainty, automation
would allow the government to
respond to recessions more quickly.
In general, legislative responses are
considered to have a large “inside lag,”
since discretionary fiscal responses to
recessions take time to draft, debate,
and pass in Congress. Monetary policy
faces no such constraints, so its inside
lag is considerably less. However, its
“outside lag,” or the time before its
effects reach the economy, is greater
than that of legislation. The proposal
outlined in this paper eliminates
the inside lag of fiscal responses by
legislating in advance an automated
framework for its implementation
(Baunsgaard and Symansky 2009). The
proposal would reduce both inside
and outside lags to less than that of
monetary policy, resulting in precisely
timed tax changes (Krugman 2008).2
2
The second Bush tax cut (JGTRRA 2003)
was passed at the economy’s nadir in 2003 but
rate of contribution would
be assessed on the basis of a
forecast of the average level
of unemployment, in such
a way as to keep the social
insurance fund in balance over
a number of years. But the rate
of contribution actually levied
would exceed the standard rate
at times when unemployment
fell below the estimated average
level and would be less than the
standard rate at times when
unemployment exceeded this
average (British Ministry of
Reconstruction1944).
The white paper also proposed that if
this proposal proved effective, a similar
formula flexible measure would be
considered for the entire tax system.
Although the policy never passed into
law, we can still gather insight from the
idea.
Under a formula flexible tax code, rates
fluctuate throughout the economic
cycle. In recessions, rates decrease in
order to induce consumption, and
in booms, rates increase in order to
reduce consumption to prevent the
economy from overheating. This
concept is indebted to the Keynesian
multiplier, through which government
expenditures indirectly affect private
consumption. Keynesian economics,
and with it formula flexibility, fell
out of favor in the latter half of the
twentieth century. Yet the Great
Recession demonstrated that Keynesian
economics is not obsolete, and neither
is formula flexibility. Although
28. levied against automated formula
flexibility has been its reliance on
tenuous economic forecasts (Cassidy
1970). This proposal addresses this by
relying on current economic conditions
reflected in the Bureau of Labor
Statistics’ (BLS) Current Population
Survey, rather than economic
forecasts. Relying on the National
Bureau of Economic Research, which
traditionally dates turning points in
the economic cycle, would significantly
increase the policy’s lag time, since
their process is retrospective and based
on trends in quarterly GDP growth. In
contrast, BLS releases unemployment
data monthly, so the lag is notably
less. Because a reduced lag time risks a
false trigger, the proposal recommends
requiring two consecutive reports of at
or below five percent unemployment
to trigger a tax increase. Similarly,
the proposal would require two
consecutive reports of greater than
five percent unemployment to lift the
tax. Requiring two reporting periods
also allows the proposed tax to avoid
frequent rate changes.
Although the proposal avoids
traditional critiques of formula
flexibility, it may raise other concerns.
First, BLS sometimes retroactively
revises unemployment statistics, which
may reduce the proposal’s effectiveness.
Yet, although economic statistics may
not be perfectly accurate, they already
play an enormous role in government
responses to the economic cycle. The
Federal Reserve adjusts interest rates
based on such indicators, although
unemployment is one of many data
considered. This proposal seeks to
II. THE PROPOSAL
Although there are many potential
variations of formula flexibility, all
of them produce the same result:
countercyclical revenue that serves
to reduce the severity of fluctuations
in the economic cycle. As noted
above, formula flexibility can apply to
progressive or flat taxes. The proposal
can be entirely formula flexible
with rates rising in good economic
times and falling in poor times.
Alternatively, it can embody partial-
formula flexibility raising a surplus and
maintaining this balance in a rainy-
day fund to cover deficit spending
during downturns. This spending
could be automated or could remain
discretionary but benefit from a clear
funding stream. Consider a modern-
day proposal relying on progressive
taxes. One such proposal would take
the form of a three-percentage point
increase in marginal rates of the
top two federal income tax brackets
(an increase in progressivity) that is
triggered by a fall in unemployment
below five percent for two consecutive
reporting periods. Taxes then fall
back to their original rates once
unemployment rises above the five
percent threshold for two consecutive
periods.
The desire to reduce lag time
determines the choice of an economic
trigger.3
Historically, a major criticism
Krugman notes this was entirely by chance. The
proposal in this paper seeks to ensure that such
actions are not limited to happenstance.
3
For a discussion of the relative merits of triggers
see Baunsgaard and Symansky, “Automatic Fiscal
Stabilizers.”
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29. THE GEORGETOWN PUBLIC POLICY REVIEW | 23
respond to an increased tax burden
by cutting back jobs. Furthermore,
compliance and forecasting under a
formula flexible tax system would be
more costly than under a static one.
Unemployment is thus unlikely to fall
much below the five percent threshold
at which the tax goes into effect. Some
level of unemployment is needed for
an efficient economy, although the
five percent threshold selected for
this paper is arbitrary. Congress must
carefully select a threshold level when
enacting such a proposal.4
A fourth concern is that the proposal
would exacerbate tax inefficiency.
This concern is important but beyond
the scope of this paper. Calls for tax
reform note that the tax code is already
egregiously inefficient. The proposal
should be adopted in conjunction with
measures to increase tax efficiency
and to broaden the tax base. These
measures should also close loopholes
that would allow households to avoid
the proposed tax. Although tax evasion
is a concern, the proposal is modest
in comparison to many proposed tax
changes. If the proposal were adopted
within the context of greater tax
reform, the resulting tax code would be
more efficient and offer greater stability.
Fifth, some would raise concerns that
collecting additional revenue would
spur excessive government spending.
Questions of how tax revenue may
influence government spending are
4
The 5 percent threshold was selected by
examining unemployment over the past 30 years.
Applying a 5 percent threshold, the proposal
would have been in effect during the two recent
economic booms in 1997-2001 and 2006-2007.
weigh the need for precise timing
with the potential for inaccurate data.
By requiring two consecutive reports
before changing the rate, the proposal
reduces the likelihood of a false trigger,
while ensuring a properly timed
response.
Second, some would argue that a
triggered fiscal response would be
uneven or “lumpy” (Baunsgaard and
Symansky 2009). Although such
criticism is valid, a three-percentage
point fluctuation in marginal rates
is relatively modest in comparison
to many other proposed tax reforms
and rate changes. Nevertheless, the
proposal’s reliance on one trigger
renders it either “on” or “off” as
opposed to monetary policy which
can change fluidly to manage an over-
expanding economy (Baunsgaard and
Symansky 2009). The proposal can
more smoothly respond to changes in
economic conditions if it is based on
several trigger thresholds. For example,
marginal rates can increase by one-
percentage point when unemployment
falls below 5.5 percent for two
consecutive reports, and then increase
another percentage point when it
falls below 5.3 percent. The marginal
rate can further increase by another
percentage point to reach a total
increase of three-percentage points at
or below a five-percent unemployment
rate. Of course, efforts to reduce
lumpiness threaten to increase
inefficiency, requiring additional
periodic changes in the tax system.
Third, the proposal could potentially
produce higher levels of unemployment
than a static tax system. Employers may
30. do the opposite and spur consumer
spending. If Congress seeks to use
formula flexibility in downturns, it
should pursue tax changes that would
alter consumer behavior. Payroll taxes
are superior in this regard, as they fall
on relatively more credit-constrained
households, resulting in a higher
Keynesian multiplier.
Another formula flexible policy would
peg tax deduction phase-outs to
economic conditions. Tax deductions,
or tax expenditures, destabilize the
economic cycle as deductions rise
during boom times and fall during
downturns (Listokin 2012). Phase-outs
“negate some destabilization properties
of tax expenditures” by increasing
marginal tax rates and overall
progressivity (Listokin 2012). To link
phase-outs to economic indicators can
further stabilize the economic cycle.
For example, tax policies could adjust
to make mortgage payments deductible
only if unemployment is above five
percent. Households would then
vary consumption countercyclically,
increasing consumption in downturns
and reducing it in booms. In this
manner, politically popular tax
deductions can be preserved, and their
destabilizing properties mitigated.
Another proposal considers state
taxation. If a state were to peg its
taxes to economic indicators, it could
attract business in downturns and raise
revenue in boom periods. This proposal
is predicated on capital stickiness;
once established, firms will not readily
move elsewhere. Such a proposal
would more closely resemble a pure
formula flexible proposal where the tax
also beyond the scope of this paper.
Temporary increases in revenue
may lead to permanent increases in
spending over the entire economic
cycle. This tax proposal should be
considered primarily as a deficit
reduction method or as a way to pay
for deficit spending in economic
downturns. Diverting revenue to pay
down the national debt or to pay into a
rainy day fund may provide solutions.
Finally, critics may fear that this kind
of tax policy would distort consumer
behavior. Consumer responsiveness to
tax changes remains a contested field
in economics, but the proposal avoids
this debate altogether. If the proposal
leads to a decline in consumption,
the deadweight loss serves to cool a
potentially overheating economy. If the
proposal does not affect consumption,
then the tax is efficient, and Federal
Reserve monetary policy alone can
realign demand with long-term output.
In either case, tax revenue is raised with
minimal impact on the economy.
III. OTHER APPLICATIONS
As addressed above, possibilities for
formula flexibility go well beyond
this single proposal. One variant
could include an automated tax cut;
income or payroll tax rates could fall if
unemployment rises above a selected
threshold, such as eight percent, for two
periods. The tax system serves different
needs at opposite ends of the economic
cycle. In good economic times, taxes
should minimize deadweight loss, and
not interfere with consumer behavior.
In bad economic times, tax cuts should
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31. THE GEORGETOWN PUBLIC POLICY REVIEW | 25
In the United States, such a proposal
faces a major hurdle to satisfy balanced
budget requirements. Most states
face this constraint, under which
this proposal cannot be executed.
The balanced budget requirement
exacerbates the economic cycle because
it forces government expenditures to be
procyclical, with government spending
more heavily during booms and cutting
spending during recessions.
A more flexible budget policy would
instead require a balanced budget over
an economic cycle and would allow
for formula flexible taxation. Under
this policy, tax rates would be placed
high enough to ensure a balanced
budget over the economic cycle. To
avoid deficit bias, excess revenues
could be set aside during surplus
years to fund future deficits. Fiscal
credibility is central to this proposal;
some may question state governments’
commitment to adhere to a more
lenient budget requirement. However,
if the proposal is pegged to federal
data (namely BLS state unemployment
rates), credibility would be assured
(Baunsgaard and Symansky 2009). A
variant proposal would be to set tax
rates higher to ensure a predetermined
surplus over the economic cycle, which
could be used to pay down debts or
pension liabilities.
A final modest formula flexible
proposal would be to improve the
timing of the implementation of tax
increases. Phasing in tax increases
so that rates do not increase until
economic conditions have sufficiently
improved, such as after unemployment
falls below 5 percent, would provide
rate varies continually with state-level
unemployment, as determined by the
BLS. For instance, taxes could vary
up to ten-percentage points to follow
fluctuations in the economic cycle at
the state level.
A similar system exists in the United
Kingdom in the Scottish Variable Rate.
That provision allows the Scottish
Parliament to vary the standard
British income tax by up to three-
percentage points. Although Scotland
has never used this power, a similar
provision would allow an economically
languishing American state to gain a
competitive edge, or allow a booming
state to raise revenue. Consider, for
example, North Dakota during the
Great Recession, which enjoyed a
peak unemployment rate of just over 4
percent largely due to the development
of the Bakken Shale (BLS 2013). North
Dakota could have easily managed a
proposal that raised revenue in times
of such low unemployment. To the
extent that firms left North Dakota,
jobs would move to an area of higher
unemployment. To the extent that
firms were rooted to North Dakota
(and the Bakken development in
particular), employment instate would
be unaffected. In a perfectly efficient
market, this proposal, if adopted in all
50 states, could equalize unemployment
across the country. Similarly, this
proposal could greatly benefit the
Eurozone. Adopting formula flexible
tax regimes in each Euro member state
could help balance unemployment
across the entire European Monetary
Union.
32. in downturns, to pay down pension
liabilities, or simply to fund future
deficit spending. It is time we consider
such proposals.
V. REFERENCES
Baker, Scott R., Nicholas Bloom, and Steven
J. Davis. “Measuring Economic Policy
Uncertainty.” http://www.policyuncertainty.
com/media/BakerBloomDavis.pdf.
Baunsgaard, Thomas and Steven A. Symansky.
2009. “Automatic Fiscal Stabilizers:
How Can They Be Enhanced Without Increasing
the Size of Government?” International
Monetary Fund, Fiscal Affairs Department.
http://www.imf.org/external/pubs/ft/
spn/2009/spn0923.pdf.
British Ministry of Reconstruction, Employment
Policy, Cmd. 6527 (London: HMSO, 1944).
Bureau of Labor Statistics, Local Area
Unemployment Statistics: North Dakota,
Rep. (2013). http://data.bls.gov/timeseries/
LASST38000003?data_tool=XGtable.
Cassidy, Henry J. 1970. “Is a Progressive Tax
Stabilizing?” National Tax Journal 23, no. 2.
Congressional Budget Office. 2012. Economic
Effects of Policies Contributing to Fiscal
Tightening in2013. http://www.cbo.gov/sites/
default/files/cbofiles/attachments/11-08-12-
FiscalTightening.pdf.
Krugman, Paul. 2008. “Bush Tax Cut Mythology.”
The Conscience of a Liberal, January 14. http://
krugman.blogs.nytimes.com/2008/01/14/
bush-tax-cut-mythology/?_r=1.
Listokin, Yair. 2012. “Equity, Efficiency, and
Stability: The Importance of Macroeconomics
for Evaluating Income Tax Policy.” Yale
Journal on Regulation 29, no. 1: 45-89. http://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=1372782.
Posen, Adam S. 1998. “Fiscal Policy Works
When It Is Tried.” Restoring Japan’s Economic
Growth, 29-54. Washington, DC: Peterson
Institute for International Economics.
Solow, Robert M. 2005. “Rethinking Fiscal
Policy.” Oxford Review of Economic Policy 21,
government financial credibility. This
back-loaded austerity measure would
then go into effect when its economic
impact is smallest.
IV. CONCLUSION
Fiscal policy has regained its stature
in both the academic and the political
sphere as a consequence of the Great
Recession. Accordingly, it is time
to reconsider uses for fiscal policy
not only during recessions but also
over the entire economic cycle. In
enacting a formula flexible framework,
policymakers must address a series
of issues left unsettled by this paper,
such as the choice of a tax scheme,
the choice of a trigger, and decisions
regarding tax windfalls from economic
booms. While the details will be
matters for political debate, the
framework itself should appeal to fiscal
libertarians and liberals alike.5
This
framework should be accompanied by
broad tax reform and other measures
to address the deficit, especially the
projected long-term shortfall in social
security. Formula flexible policies
are not limited to the proposal and
variations presented in this paper. In all
proposals, the benefits are largely the
same: a countercyclical revenue source
that serves to reduce policy uncertainty
and the severity of fluctuations over
the economic cycle. Formula flexibility
can be applied at the federal, state, or
international level to fund tax cuts
5
For further discussion of formula
flexibility and methods of automating fiscal
responses see Robert M. Solow, “Rethinking
Fiscal Policy,” Oxford Review of Economic
Policy 21, no. 4 (2005).
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33. THE GEORGETOWN PUBLIC POLICY REVIEW | 27
no. 4: 509-14, http://oxrep.oxfordjournals.org/
content/21/4/509.full.pdf.
35. THE GEORGETOWN PUBLIC POLICY REVIEW | 29
Public Policy Lessons
From Chile
Individuals with Disabilities:An Untapped Talent Pool
Andrew Crawford Lange
Abstract
T
his paper is a qualitative study of individuals with
disabilities in Chile, with attention to international and
Chilean employment policy that supports their
integration into the labor force.Through a comparative analysis
of Chilean and international labor policy, this paper asserts that
additional labor policy initiatives would improve the employment
potential of individuals with disabilities in Chile, and provides
recommendations for international and Chilean labor policy.
There is a need for greater inclusion of equal opportunity policies
as well as stronger efforts to connect individuals with disabilities
with representatives of organizations that support
their employment.
Andrew Lange holds a Dual
Masters in Applied Economics
from Georgetown University and
Universidad Alberto Hurtado
(Santiago, Chile) as an Organization
of American States Scholar, and a
Masters in International Law and
Human Rights from the United
Nations University for Peace in Costa
Rica. He recently wrote a good
practices guide for the International
Labour Organization on employing
young people with disabilities.
Andrew currently works at the World
Bank Group in Washington, DC.
36. disabilities has an incredible range of
benefits.
While it is clear that many
obstacles exist for individuals with
disabilities, innovative initiatives
have demonstrated that most jobs
can be performed when provided the
right support and work environment.
Recognizing that positive action
is needed to help individuals with
disabilities break out of the cycle of
poverty, this study focuses on public
policy that seeks to overcome barriers
which disabled people face in finding
employment, with particular attention
to policy interventions, programs
and services. This study focuses
on individuals classified as having
“slight and moderate” disabilities
as defined by CASEN 2009, since
those with serious disabilities” may
not be realistically employable.
The “CASEN” (Caracterización
Socioeconómica Nacional) is a nation-
wide socioeconomic characterization
survey administered biannually or
triennially by Chile’s Ministry of Social
Development. Its main objective is
to measure and determine poverty
levels among people living in private
households according to education,
health, housing, employment and
income. It seeks to identify the needs
and demands of the general population
in targeted areas and to assess gaps that
separate different social groups and to
evaluate the impact of social policy.
II. STATISTICAL ANALYSIS
Surveys of persons with disabilities in
Chile are subject to significant variation
I. INTRODUCTION
The 2011 World Report on Disability
by the World Health Organization and
the World Bank asserts that working
age persons with disabilities experience
significantly lower employment rates
and much higher unemployment
than persons without disabilities in
developed and developing countries
(World Health Organization 2011).
Furthermore, decreased labor
market participation is considered an
important pathway through which
disability can lead to poverty.
According to CASEN 2009 survey
data from the Chilean Ministry of
Social Development, individuals with
disabilities experience less than half
the labor force participation rate of
their non-disabled peers in Chile.
Though these low participation rates
for individuals with disabilities are not
unique to Chile, unemployment rates
for people with disabilities are higher
than for people without disabilities in
every society (UNESCO 2013).
In response to this socio-economic
challenge, there is a growing
international movement to support
the employment of individuals with
disabilities. A leader in this movement,
the International Labour Organization
(ILO), states that work of decent
quality is the most effective means of
escaping marginalization, poverty and
social exclusion and that people with
disabilities are frequently trapped in
this vicious circle (International Labour
Organization 2013). Similarly, growing
evidence indicates that opening up
the world of work to people with
30 | LANGE
37. THE GEORGETOWN PUBLIC POLICY REVIEW | 31
are represented by a total of 1,180,662
weighted respondents. Those who
were reported as severe or bedridden
totaled 59,577 in terms of weighted
respondents.
Among those who reported some form
of employment training, individuals
with disabilities were found to be
among the most marginalized. With a
labor force participation rate of just 26
percent, individuals with disabilities
are economically active at less than half
the rate of those without disabilities,
who reported a participation rate of 59
percent.
This means there are far fewer
individuals with disabilities who are
either employed or actively looking for
work than non-disabled individuals
in Chile, as those no longer actively
searching for work would not be
included in the participation rate.
In terms of those who reported
having undergone some form of
employment training, only 9.3 percent
of individuals with disabilities received
job training compared to 30 percent
of non-disabled individuals indicated
due to inconsistencies in defining and
recording disability (SENADIS 2012).
The MINSAL Quality of Life and
Health Survey from 2000 indicated
21.7 percent of the Chilean population
was disabled while the 2002 Population
and Living Census stated only 2.2
percent of the population was disabled,
indicating a problem of statistical
dilemma. This study analyzes data
from the CASEN survey for 2009, as
the 2011 version did not record data
on disabilities. Data on participation
rates, employment training, age and
gender were analyzed to explore how
the disabled are particularly challenged
in the labor market.
The CASEN 2009 survey records
disability according to type and
degree of disability. The type of
disability is defined as physical,
mental, psychiatric, hearing, speech
or vision and degree is defined as
independent, mild, moderate, severe or
bedridden. Since this study is mostly
concerned with the employment of
individuals with disabilities, particular
interest is provided to those who are
independent, mild or moderate and
Table 1: Degree of Disability
Degree of Disability Frequency Percent Cumulative
Independent 14,278 5.79 5.79
Mild 4,035 1.64 7.42
Moderate 2,051 0.83 8.25
Severe or Bedridden 952 0.39 8.64
Disabled and under 6 years of age 208 0.08 8.72
Not Disabled 225,200 91.25 99.98
No Data 58 0.02 100
Total 246,782 100
Note: CASEN survey data from 2009 was obtained from the Government of Chile’s Ministry of Social Develop-
ment. Means are calculated using weighted estimates.
38. Table 2: Participation in Employment Training
Disability Participation Rate
Disabled 26%
Not Disabled 59%
Note: Participation rate is calculated according to individuals with disabilities who
were working and those who were not working.
Table 3: Participation in Employment Training
Attend Employment Training Yes No Total
Disabled 9% 91% 1,254,158
Not Disabled 30% 70% 15,323,436
Total 29% 71% 16,577,594
Note: Means are calculated using weighted estimates.
Table 4: Disability Among Working Age Groups
Age Groups Disabled Not Disabled Total
15 to 24 3% 97% 3,004,752
25 to 34 4% 96% 2,158,409
35 to 44 5% 95% 2,253,608
45 to 54 9% 91% 2,231,768
55 to 64 15% 85% 1,514,965
Total 6% 94% 11,163,502
Note: Means are calculated using weighted estimates.
Table 5: Disability for Three Age Groups Among Working Ages
Age Groups Disabled Not Disabled Total
14 and younger 2% 98% 3,414,602
15 to 64 6% 94% 11,163,502
65 and older 26% 74% 1,788,784
Total 8% 92% 16,366,888
Note: Means are calculated using weighted estimates.
Table 6: Disability According to Gender
Disability Men Women Total
Disabled 45% 55% 1,254,158
Not Disabled 48% 52% 15,323,436
Total 48% 52% 16,577,594
Note: Means are calculated using weighted estimates.
32 | LANGE
39. THE GEORGETOWN PUBLIC POLICY REVIEW | 33
III. CHILEAN LABOR
POLICY THAT SUPPORTS
THE EMPLOYMENT OF
INDIVIDUALS WITH
DISABILITIES
A. Labor policy in Chile
To analyze labor policy in Chile,
particular consideration is given
to the National Disability Service’s
(SENADIS) National Policy of Social
Inclusion for People with Disabilities
from 2013 to 2020. (SENIDAS 2013)
(hereafter referred to as the National
Disability Policy) as well as specific
laws regarding universal access for
individuals with disabilities. These
laws include Law 20422 (Standards
for Equal Opportunities and Social
Inclusion for People with Disabilities )
from 2010, and Law 19284 (Standards
for the Full Social Integration of
Individuals with Disabilities) from
1994.
Chile’s National Disability Policy has
a legal framework for disability rights
according to constitutional principals,
the United Nations Convention on
the Rights of Persons with Disabilities
(CRPD) and Law 20,422. The latter
two are addressed at the end of
this section. Disability issues are
addressed regarding equality and
non-discrimination which are part
of article 1 of the constitution which
identifies equality, dignity and rights
of individuals. The constitution further
asserts full equality before the law
which can’t be changed arbitrarily. The
National Disability Policy states that
despite constitutional protections, it
is necessary to advance public policy
employment, as observed in table 3 on
participation in employment training.
This particularly low rate of training
among individuals with disabilities
indicates that there are barriers keeping
these individuals from receiving job
training.
When broken down into age groups
of 10 years among the working age,
disability actually decreased from
82,089 for age group 15 – 24 to 76,488
for age group 25 – 34 (see table 4).
Aside from this deviation, these
numbers increase among subsequent
age groups.
Moreover, disability was generally
observed to increase with age as such
conditions often develop as the result
of accidents or illness. As seen in table
5, the majority of disabled respondents,
57 percent, were of working age (15 to
64 years old).
These results signal that employment
policy should support employment
services for individuals with disabilities
of all working age groups in Chile.
With regards to gender, women were
found to experience disability at a
higher rate (8 percent) than men
(7.1 percent), as seen in table 6. This
difference, although slight, is relevant
for policy makers to be aware of, so
that employment services and support
is particularly encouraged among
women with disabilities.
40. in the workplace, in all areas and
levels.
b) Develop social awareness
strategies that remove barriers to
the labor market for people with
disabilities.
c) Develop strategies that consider
productive capacities and needs of
people with disabilities, and enable
them to receive an income.
d) Facilitate effective access for
people with disabilities to technical
and vocational programs, and
placement services for different levels
and types of education available in
the country.
e) Promote and develop inclusive
selection and contract mechanisms
in both public and private areas.
f) Promote incentives for labor
inclusion for people of higher
levels of dependence and/or social
vulnerability.
g) Promote the measurement,
assessment and recognition of
effective states of labor inclusion in
public and private establishments.
h) Promote innovation and
development of technologies that
enable more and better labor market
inclusion of people with disabilities
in different areas of production.
i) Ensure the safeguarding of
employment for people, the
performance of their work, who
have some type of temporary or
permanent disability, generating
strategies that stimulate
for the betterment of individuals with
disabilities.
In terms of training and labor
inclusion, the National Disability Policy
seeks to increase access to the labor
market for the disabled community
who are of age to work, in conditions of
inclusion and equality, through training
programs for work and support for
continued employment, recruitment
incentives, supporting productive
enterprises and certification of public
and private labor inclusion. Another
important consideration for labor
integration is the National Disability
Policy’s emphasis on Universal Access.
This is addressed by creating strategies
to promote access for people with
disabilities on an equal basis with
others, for training purposes and other
areas of civil and social inclusion.
The National Disability Policy
recognizes work as one of the main
elements for cohesion, personal,
family and social security. It states
that the absence of a decent job can
have significant negative impacts on
individual and family wellbeing. The
policy acknowledges that individuals
with disabilities have the right to obtain
decent work with equal conditions,
without discrimination and in work
that is freely chosen in a market
or work environment that is open,
inclusive and accessible.
Provided these considerations, the
following strategic guidelines are set
out for training and labor inclusion:
a) Encourage people with disabilities
to be included in equal opportunities
34 | LANGE
41. THE GEORGETOWN PUBLIC POLICY REVIEW | 35
and social dialogue. Moreover, law
20,422 indicates that Individuals
covered by the National Disability
Policy will have the right to file
before the General Comptroller of
the Republic if they experience an
obstruction to their rights.
Another relevant Chilean law is 19,284
(1994), regarding social integration
of people with disabilities. This law
refers to employment, training and
sanctions for those who violate these
norms or discriminate against workers
with disabilities. This law signals that
individuals with disabilities are entitled
to adapted recruitment systems to
apply for studies or employment.
According to Contreras, this law also
identifies the importance that the job
training corresponds to occupations
required by the labor market. Contreras
identifies that the government will
support the insertion of disabled
people in the labor market, in order to
guarantee their independence, personal
development, and their right to raise a
family and have a dignifying life.
C. Implementing, monitoring
and evaluating the National
Disability Policy
The National Disability Policy
establishes that the formation of
public policy is part of a process
that involves review, monitoring
and evaluation in order to provide
feedback to stakeholders on their
progress, difficulties and lessons
learned. To that end, SENADIS
provides technical advice to the Inter-
ministerial Committee in preparation
of the National Disability Policy
rehabilitation opportunities and
employment mediation.
j) Promote the creation and
maintenance of information on the
labor inclusion of individuals with
disabilities.
k) Coordinate public and private
resources for optimal benefit.
l) Disseminate social protection
mechanisms related to contingencies
such as old age, disability and general
citizenship.
B. Creation of the National
Disability Policy in Chile
The National Disability Policy was
created through a joint effort which
included the following actors: Comité
Interministerial de Desarrollo Social,
Consejo Consultivo de la Discapacidad
(which includes five representatives
from disability organizations),
SENADIS, Public Sector, Private Sector
and Civil Society.
The inclusion of the above mentioned
actors in the policy process, specifically
the Public Sector, Private Sector, and
Civil Society, is protected by Chilean
law 20,422 (2010) regarding norms
about equal opportunities and social
inclusion for people with disabilities.
Law 20,422 indicates fundamental
principals such as “participation and
social dialogue” and that individuals
with disabilities, their families and
relevant organizations should have
an active role in the development of
respective public policies. This law is
based on principals of independent
living, universal accessibility, universal
design, intersectorality, participation
