Presentation by Ben Page, Unit Chief for Fiscal Policy Studies in CBO's Macroeconomic Analysis Division, at the NABE Foundation's 12th Annual Economic Measurement Seminar.
Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, and Teri Gullo, CBO's Assistant Director for Budget Analysis, at the Center on Budget and Policy Priorities.
This document provides an overview of the Congressional Budget Office's approach to dynamic scoring. It discusses:
1) The new requirement for CBO to incorporate macroeconomic feedback effects into its estimates of major legislation.
2) CBO's models and methodology for analyzing short and long-term economic effects of fiscal policy changes.
3) A case study on CBO's dynamic estimate of repealing the Affordable Care Act, which found repealing it would increase deficits by $137 billion over 10 years after accounting for macroeconomic feedback effects.
CBO is implementing dynamic scoring of legislation as required by the 2016 budget resolution. Dynamic scoring incorporates the macroeconomic feedback effects of legislation, including impacts on GDP, the labor supply, private investment, and federal deficits. CBO uses two economic models - a Solow-type growth model and a life-cycle growth model - to estimate long-term effects on potential output and the federal budget. Cost estimates that include dynamic analysis separately identify macroeconomic feedback effects and provide information on the uncertainty of those effects.
The document outlines the Congressional Budget Office's (CBO) new requirements to incorporate macroeconomic effects into legislative cost estimates for bills estimated to have large budgetary impacts. It describes CBO's models and approaches for estimating both short-term effects on economic output and long-term effects on potential output from changes in fiscal policies. The document also provides details on how CBO analyzes factors like demand multipliers, labor supply responses, investment effects, and more.
On March 7, 2016, Wendy Edelberg, an Associate Director for Economic Analysis at CBO, will present at the University of Chicago Booth School of Business.
CBO has devoted significant effort to developing analytical tools that enable it to assess the macroeconomic effects of fiscal policies and how such effects, or "macroeconomic feedback," would affect the federal budget. When CBO incorporates such effects in its cost estimates of major legislation, the approach is often called dynamic scoring. This presentation describes how CBO prepares estimates of macroeconomic feedback, and provides a case study on proposed legislation to repeal the Affordable Care Act.
Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, to the Wharton School of the University of Pennsylvania.
CBO has devoted significant effort to developing analytical tools that enable it to assess the macroeconomic effects of fiscal policies and how such effects, or "macroeconomic feedback," would affect the federal budget. This presentation describes the tools CBO uses to estimate the long-term economic effects of fiscal policies.
Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, and Teri Gullo, CBO's Assistant Director for Budget Analysis, at the Center on Budget and Policy Priorities.
This document provides an overview of the Congressional Budget Office's approach to dynamic scoring. It discusses:
1) The new requirement for CBO to incorporate macroeconomic feedback effects into its estimates of major legislation.
2) CBO's models and methodology for analyzing short and long-term economic effects of fiscal policy changes.
3) A case study on CBO's dynamic estimate of repealing the Affordable Care Act, which found repealing it would increase deficits by $137 billion over 10 years after accounting for macroeconomic feedback effects.
CBO is implementing dynamic scoring of legislation as required by the 2016 budget resolution. Dynamic scoring incorporates the macroeconomic feedback effects of legislation, including impacts on GDP, the labor supply, private investment, and federal deficits. CBO uses two economic models - a Solow-type growth model and a life-cycle growth model - to estimate long-term effects on potential output and the federal budget. Cost estimates that include dynamic analysis separately identify macroeconomic feedback effects and provide information on the uncertainty of those effects.
The document outlines the Congressional Budget Office's (CBO) new requirements to incorporate macroeconomic effects into legislative cost estimates for bills estimated to have large budgetary impacts. It describes CBO's models and approaches for estimating both short-term effects on economic output and long-term effects on potential output from changes in fiscal policies. The document also provides details on how CBO analyzes factors like demand multipliers, labor supply responses, investment effects, and more.
On March 7, 2016, Wendy Edelberg, an Associate Director for Economic Analysis at CBO, will present at the University of Chicago Booth School of Business.
CBO has devoted significant effort to developing analytical tools that enable it to assess the macroeconomic effects of fiscal policies and how such effects, or "macroeconomic feedback," would affect the federal budget. When CBO incorporates such effects in its cost estimates of major legislation, the approach is often called dynamic scoring. This presentation describes how CBO prepares estimates of macroeconomic feedback, and provides a case study on proposed legislation to repeal the Affordable Care Act.
Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, to the Wharton School of the University of Pennsylvania.
CBO has devoted significant effort to developing analytical tools that enable it to assess the macroeconomic effects of fiscal policies and how such effects, or "macroeconomic feedback," would affect the federal budget. This presentation describes the tools CBO uses to estimate the long-term economic effects of fiscal policies.
Presentation by Wendy Edelberg, an Associate Director for Economic Analysis at CBO, at the Australian Treasury Research Institute's conference, Modelling for Public Policy Analysis: Emerging Trends and Future Directions.
If current laws governing federal taxes and spending did not change, the United States would face steadily increasing federal budget deficits and debt over the next 30 years, according to projections by CBO. As a result, CBO estimates, public debt would reach 145 percent of GDP by 2047, higher than any percentage previously recorded in the United States.
Federal tax and spending policies can affect the economy through their impact on federal borrowing, private demand for goods and services, people’s incentives to work and save, and federal investment, as well as through other channels. CBO has devoted significant effort to developing analytical tools that enable it to assess the macroeconomic effects of fiscal policies and how such effects, or “macroeconomic feedback,” would affect the federal budget. CBO analyzes the economic effects of federal fiscal policies in current law as well as significant proposed changes in those policies.
The Congressional Budget Office will incorporate dynamic scoring into its cost estimates for major legislation as required by the 2016 budget resolution. Dynamic scoring will estimate both short-term and long-term macroeconomic effects of legislation on the economy and federal budget. In the short-term, estimates will reflect impacts on output and demand. In the long-term, estimates will use Solow and life-cycle growth models to project impacts on potential output and fiscal sustainability. Dynamic scores will clearly identify macroeconomic effects separately from traditional scoring.
The document describes the Congressional Budget Office's Health Insurance Simulation Model (HISIM) which is a microsimulation model used to estimate the budgetary and coverage effects of health insurance proposals including the Affordable Care Act. The model uses individual-level data and elasticities to simulate how individuals and employers would respond to changes in policies and estimate the resulting impacts on federal spending and insurance coverage. Recent applications of the model estimated that the Affordable Care Act would reduce the number of uninsured Americans and result in net increased federal spending of over $1 trillion from 2015 to 2024.
This document summarizes the Congressional Budget Office's (CBO) methodology for projecting long-term spending on Medicare and Medicaid in the United States. The CBO uses a microsimulation model called CBOLT that is governed by an overarching macroeconomic model. Spending projections are based on historical trends in excess cost growth, population growth, and economic growth. The CBO assumes excess cost growth will gradually decline from 1.6 percentage points currently to 1.0 and 0 percentage points for Medicare and Medicaid respectively over 75 years.
Presentation by Peter Fontaine, CBO's Assistant Director for Budget Analysis, to a Global Network of Parliamentary Budget Offices Community Meeting Sponsored by the World Bank Institute
This summary outlines key points from a Congressional Budget Office presentation on the design of a revenue-neutral carbon tax:
- The presentation discusses various design considerations for a carbon tax, including how it would interact with existing regulations, the initial tax level and rate of increase, potential revenue raised, and economic and distributional impacts.
- Most studies find that a carbon tax would be regressive without considering how revenue is used, but the degree of regressivity varies. The ultimate distributional impact depends on how revenue is spent.
- Potential uses of revenue include reducing deficits, lowering other tax rates, and providing tax credits. Each option involves different tradeoffs between economic impacts, distributional effects, and incentives to reduce emissions
Presentation by Wendy Edelberg at the Peterson Institute for International Economics conference on Labor Market Slack: Assessing and Addressing in Real Time
This presentation discusses proposals to reduce federal spending on military health care. It summarizes proposals from the Department of Defense and the Military Compensation and Retirement Modernization Commission to restructure TRICARE by consolidating plans and encouraging more efficient care consumption. It also examines Congressional Budget Office options to slow cost growth through increased cost sharing and better disease management that could reduce spending by $18-90 billion and $0.02-0.15 billion respectively over 10 years. The presentation outlines CBO's approach to estimating costs and effects of policy changes on the federal budget.
Presentation to the 2014 Fall Research Conference of the Association of Public Policy and Mangement, by Joyce Manchester, Vermont Legislative Joint Fiscal Office and formerly of CBO, Michael Simpson and Geena Kim, of CBO
This document summarizes a Congressional Budget Office presentation on modeling the budgetary costs of the Federal Housing Administration's single-family mortgage insurance program. It provides an overview of FHA mortgage insurance, how costs are estimated under credit reform accounting, and CBO's statistical modeling approach for projecting cash flows and costs. Key results include projected subsidy rates and the capital reserve ratio out to 2024 under different economic scenarios.
Michael Simpson, Principal Analyst in CBO's Health, Retirement, and Long-Term Analysis Division, will present CBO’s findings to the Fifth World Congress of the International Microsimulation Association on September 2, 2015.
This presentation from the Congressional Budget Office provides an overview of their projections for Medicaid coverage under the Affordable Care Act. It discusses how their projections have changed over time due to legislative changes, economic conditions, technical adjustments, and states' decisions around Medicaid expansion. The presentation focuses on explaining the key factors and assumptions behind CBO's modeling approach and projecting declining Medicaid enrollment compared to initial estimates.
The Congressional Budget Office (CBO) provides Congress with objective, nonpartisan analysis of the federal budget and economy. This includes baseline budget projections, cost estimates of legislation, analysis of the President's budget, and reports on federal programs and economic challenges. The CBO focuses on analyzing impacts within the next 10 years but sometimes looks out 20 years. Estimates are meant to reflect the middle of possible outcomes and incorporate behavioral responses based on available evidence. The CBO does not make policy recommendations, write legislation, enforce rules, or implement programs. It prepares 500-600 written cost estimates annually as well as thousands of informal estimates to assist with drafting legislation.
The Congressional Budget Office produces an economic forecast to use as an input for federal budget projections and analysis of legislative proposals. CBO's forecast is based on a neoclassical growth model that projects potential and actual output. Potential output depends on estimates of the potential labor force, capital stock services, and total factor productivity. In CBO's view, productivity growth has been weaker than expected since the recession due to continued effects of the recession, data revisions, and fiscal policy changes.
The document compares drug costs and spending trends under Medicare Part D and Medicaid. It finds that while Part D costs have grown more slowly than originally estimated due to market factors, plan payments have grown faster than drug costs. Medicaid obtains significantly lower drug prices than Part D primarily due to statutory rebates that average 56% of drug prices. Extending such rebates to Part D could initially reduce costs but manufacturers may eventually offset much of this through higher launch prices for new brand drugs.
The document discusses financing issues for the Children's Health Insurance Program (CHIP). It notes that while budget authority provided for CHIP exceeds allotments to states in 2014-2015, rescinding the excess would not reduce deficits but could increase appropriations for other programs. It also explains that CBO's baseline assumes $5.7 billion in annual CHIP budget authority after 2015 based on previous funding levels, and that increased federal matching rates do not impact projections since all available funding is assumed spent.
Presentation by David Austin, an analyst in CBO’s Microeconomics Studies Division, at the 91st Annual Conference of the Western Economic Association International.
Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those “external” costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than the costs for rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport. This presentation examines policy options to address those unpriced external costs.
The Congressional Budget Office (CBO) provides budget and economic projections to Congress. CBO projects that mandatory spending on major health care programs and Social Security will increase significantly as a share of GDP through 2025 due to an aging population and rising health care costs. To attain a sustainable federal budget, the United States will need to increase revenues more than currently projected or reduce spending on large benefit programs.
Presentation by Wendy Edelberg, an Associate Director for Economic Analysis at CBO, at the Australian Treasury Research Institute's conference, Modelling for Public Policy Analysis: Emerging Trends and Future Directions.
If current laws governing federal taxes and spending did not change, the United States would face steadily increasing federal budget deficits and debt over the next 30 years, according to projections by CBO. As a result, CBO estimates, public debt would reach 145 percent of GDP by 2047, higher than any percentage previously recorded in the United States.
Federal tax and spending policies can affect the economy through their impact on federal borrowing, private demand for goods and services, people’s incentives to work and save, and federal investment, as well as through other channels. CBO has devoted significant effort to developing analytical tools that enable it to assess the macroeconomic effects of fiscal policies and how such effects, or “macroeconomic feedback,” would affect the federal budget. CBO analyzes the economic effects of federal fiscal policies in current law as well as significant proposed changes in those policies.
The Congressional Budget Office will incorporate dynamic scoring into its cost estimates for major legislation as required by the 2016 budget resolution. Dynamic scoring will estimate both short-term and long-term macroeconomic effects of legislation on the economy and federal budget. In the short-term, estimates will reflect impacts on output and demand. In the long-term, estimates will use Solow and life-cycle growth models to project impacts on potential output and fiscal sustainability. Dynamic scores will clearly identify macroeconomic effects separately from traditional scoring.
The document describes the Congressional Budget Office's Health Insurance Simulation Model (HISIM) which is a microsimulation model used to estimate the budgetary and coverage effects of health insurance proposals including the Affordable Care Act. The model uses individual-level data and elasticities to simulate how individuals and employers would respond to changes in policies and estimate the resulting impacts on federal spending and insurance coverage. Recent applications of the model estimated that the Affordable Care Act would reduce the number of uninsured Americans and result in net increased federal spending of over $1 trillion from 2015 to 2024.
This document summarizes the Congressional Budget Office's (CBO) methodology for projecting long-term spending on Medicare and Medicaid in the United States. The CBO uses a microsimulation model called CBOLT that is governed by an overarching macroeconomic model. Spending projections are based on historical trends in excess cost growth, population growth, and economic growth. The CBO assumes excess cost growth will gradually decline from 1.6 percentage points currently to 1.0 and 0 percentage points for Medicare and Medicaid respectively over 75 years.
Presentation by Peter Fontaine, CBO's Assistant Director for Budget Analysis, to a Global Network of Parliamentary Budget Offices Community Meeting Sponsored by the World Bank Institute
This summary outlines key points from a Congressional Budget Office presentation on the design of a revenue-neutral carbon tax:
- The presentation discusses various design considerations for a carbon tax, including how it would interact with existing regulations, the initial tax level and rate of increase, potential revenue raised, and economic and distributional impacts.
- Most studies find that a carbon tax would be regressive without considering how revenue is used, but the degree of regressivity varies. The ultimate distributional impact depends on how revenue is spent.
- Potential uses of revenue include reducing deficits, lowering other tax rates, and providing tax credits. Each option involves different tradeoffs between economic impacts, distributional effects, and incentives to reduce emissions
Presentation by Wendy Edelberg at the Peterson Institute for International Economics conference on Labor Market Slack: Assessing and Addressing in Real Time
This presentation discusses proposals to reduce federal spending on military health care. It summarizes proposals from the Department of Defense and the Military Compensation and Retirement Modernization Commission to restructure TRICARE by consolidating plans and encouraging more efficient care consumption. It also examines Congressional Budget Office options to slow cost growth through increased cost sharing and better disease management that could reduce spending by $18-90 billion and $0.02-0.15 billion respectively over 10 years. The presentation outlines CBO's approach to estimating costs and effects of policy changes on the federal budget.
Presentation to the 2014 Fall Research Conference of the Association of Public Policy and Mangement, by Joyce Manchester, Vermont Legislative Joint Fiscal Office and formerly of CBO, Michael Simpson and Geena Kim, of CBO
This document summarizes a Congressional Budget Office presentation on modeling the budgetary costs of the Federal Housing Administration's single-family mortgage insurance program. It provides an overview of FHA mortgage insurance, how costs are estimated under credit reform accounting, and CBO's statistical modeling approach for projecting cash flows and costs. Key results include projected subsidy rates and the capital reserve ratio out to 2024 under different economic scenarios.
Michael Simpson, Principal Analyst in CBO's Health, Retirement, and Long-Term Analysis Division, will present CBO’s findings to the Fifth World Congress of the International Microsimulation Association on September 2, 2015.
This presentation from the Congressional Budget Office provides an overview of their projections for Medicaid coverage under the Affordable Care Act. It discusses how their projections have changed over time due to legislative changes, economic conditions, technical adjustments, and states' decisions around Medicaid expansion. The presentation focuses on explaining the key factors and assumptions behind CBO's modeling approach and projecting declining Medicaid enrollment compared to initial estimates.
The Congressional Budget Office (CBO) provides Congress with objective, nonpartisan analysis of the federal budget and economy. This includes baseline budget projections, cost estimates of legislation, analysis of the President's budget, and reports on federal programs and economic challenges. The CBO focuses on analyzing impacts within the next 10 years but sometimes looks out 20 years. Estimates are meant to reflect the middle of possible outcomes and incorporate behavioral responses based on available evidence. The CBO does not make policy recommendations, write legislation, enforce rules, or implement programs. It prepares 500-600 written cost estimates annually as well as thousands of informal estimates to assist with drafting legislation.
The Congressional Budget Office produces an economic forecast to use as an input for federal budget projections and analysis of legislative proposals. CBO's forecast is based on a neoclassical growth model that projects potential and actual output. Potential output depends on estimates of the potential labor force, capital stock services, and total factor productivity. In CBO's view, productivity growth has been weaker than expected since the recession due to continued effects of the recession, data revisions, and fiscal policy changes.
The document compares drug costs and spending trends under Medicare Part D and Medicaid. It finds that while Part D costs have grown more slowly than originally estimated due to market factors, plan payments have grown faster than drug costs. Medicaid obtains significantly lower drug prices than Part D primarily due to statutory rebates that average 56% of drug prices. Extending such rebates to Part D could initially reduce costs but manufacturers may eventually offset much of this through higher launch prices for new brand drugs.
The document discusses financing issues for the Children's Health Insurance Program (CHIP). It notes that while budget authority provided for CHIP exceeds allotments to states in 2014-2015, rescinding the excess would not reduce deficits but could increase appropriations for other programs. It also explains that CBO's baseline assumes $5.7 billion in annual CHIP budget authority after 2015 based on previous funding levels, and that increased federal matching rates do not impact projections since all available funding is assumed spent.
Presentation by David Austin, an analyst in CBO’s Microeconomics Studies Division, at the 91st Annual Conference of the Western Economic Association International.
Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those “external” costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than the costs for rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport. This presentation examines policy options to address those unpriced external costs.
The Congressional Budget Office (CBO) provides budget and economic projections to Congress. CBO projects that mandatory spending on major health care programs and Social Security will increase significantly as a share of GDP through 2025 due to an aging population and rising health care costs. To attain a sustainable federal budget, the United States will need to increase revenues more than currently projected or reduce spending on large benefit programs.
Presentation by David Austin, an analyst in CBO’s Microeconomics Studies Division, at the Georgetown Freight Rail Colloquium.
Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those external costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than by rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport. This presentation examines policy options to address those unpriced external costs.
This document summarizes a Congressional Budget Office report projecting the costs of U.S. nuclear forces from 2015 to 2024. It estimates that nuclear forces will cost $348 billion over the 10 year period, with the Departments of Defense and Energy spending $227 billion and $121 billion respectively. The largest costs are for ballistic missile submarines at $83 billion, intercontinental ballistic missiles at $26 billion, and bombers at $40 billion. Costs are projected to grow beyond original budget estimates by $49 billion over the period.
For its baseline budget projections, CBO estimates the revenue effects of enacted legislation that changed the amount of funding for tax enforcement. Similarly, CBO’s annual analysis of the President’s budget includes its estimates of the revenue effects of the Administration’s proposals to change such funding. (But CBO does not estimate the changes in revenue from proposals to amend the tax code; those estimates are the responsibility of the staff of the Joint Committee on Taxation.)
However, for legislation being considered by the Congress, CBO does not include projections of additional receipts from proposed increases in funding for tax enforcement in its estimates of the budgetary effects that are used for budget enforcement purposes. That approach follows the budget scorekeeping guidelines specified in the conference report for the Balanced Budget Act of 1997.
These slides describe the circumstances under which CBO estimates the revenue effects of changes in funding for tax enforcement and the factors that affect those estimates. They were the basis for a presentation by Janet Holtzblatt, a unit chief in CBO's Tax Analysis Division, at the sixth annual Internal Revenue Service-Tax Policy Center Joint Research Conference on Tax Administration.
Presentation by Chad Shirley, CBO’s Deputy Assistant Director for Microeconomic Studies, at the Transportation Policy & Finance Summit of the International Bridge, Tunnel and Turnpike Association (IBTTA).
Federal spending on highways (or, synonymously, roads) totaled $46 billion in 2014, roughly a quarter of total public spending on highways. But that spending does not correspond very well with how the roads are used and valued.
This presentation illustrates how spending on highways is related to their use and performance, and it examines three approaches that the Congress could consider to make highway spending more productive.
The Congressional Budget Office document provides an overview and analysis of the challenges of meeting the rising renewable fuel volume requirements under the Renewable Fuel Standard. Full compliance with the requirements would be difficult due to constraints like the "blend wall" limiting ethanol content in gasoline. Meeting the requirements could significantly increase transportation fuel prices and have small effects on greenhouse gas emissions and food prices in the near term.
Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, and Teri Gullo, CBO's Assistant Director for Budget Analysis, to Congressional Staff.
CBO provides formal, written estimates of the cost of virtually every bill approved by Congressional committees to show how the bill would affect spending or revenues over the next 5 or 10 years, depending on the type of spending involved. In May, the Congress adopted a concurrent resolution on the budget for fiscal year 2016 that requires CBO, to the greatest extent practicable, to incorporate macroeconomic effects into its 10-year cost estimates for major legislation that Congressional committees approve. Such estimates must also include, when practicable, a qualitative assessment of the budgetary effects for the following 20 years. Incorporating such macroeconomic feedback into cost estimates is often called dynamic scoring. This presentation describes how CBO will prepare such estimates.
The Highway Trust Fund is projected to face shortfalls in 2015 and 2016 as spending is estimated to exceed revenues. Congress has several options to address the shortfall, including reducing spending, increasing gas taxes, or providing transfers from other funds. Any new financing entities established by Congress to fund infrastructure would be considered part of the federal budget if they receive federal funds and are subject to federal control. Under federal budgeting rules, loan and loan guarantee programs are accounted for based on their estimated net cost to the government at the time loans are issued.
Presentation by Sarah Puro, Principal Analyst in CBO’s Budget Analysis Division, at the Annual Conference of the National Federation of Municipal Analysts.
The Fixing America’s Surface Transportation Act, which was signed into law on December 4, 2015, provided $281 billion in contract authority for surface transportation programs through 2020. But projected spending from the Highway Trust Fund exceeds its revenues. Under current law, CBO estimates that the Highway Account of the Highway Trust Fund will be able to meet obligations through 2021 and the Transit Account through 2020.
Some proposals involve establishing a new entity to finance infrastructure investments. However, even if such an entity is not officially a federal agency, its activity might be considered part of the federal budget.
Presentation by Wendy Edelberg, CBO’s Assistant Director for Macroeconomic Analysis, at the University of Michigan’s 63rd Annual Economic Outlook Conference.
Under current law, CBO expects economic activity to expand modestly this year, to grow at a more solid pace in 2016 and 2017, and then to moderate in subsequent years.
Presentation by Ben Page, CBO's Fiscal Policy Studies Unit Chief, at the National Tax Association 108th Annual Conference on Taxation.
In May, the Congress adopted a concurrent resolution on the budget for fiscal year 2016. That resolution requires CBO, to the greatest extent practicable, to incorporate macroeconomic effects into its 10-year cost estimates for major legislation that Congressional committees approve. Such estimates must also include, when practicable, a qualitative assessment of the budgetary effects for the following 20 years. Incorporating such macroeconomic feedback into cost estimates is often called dynamic scoring. This presentation describes how CBO will prepare such estimates.
The document summarizes a presentation given by James Baumgardner from the Congressional Budget Office at the 2015 Health Care Forecast Conference. It discusses CBO analyses and projections regarding premium support options in Medicare, federal budget and deficit projections, the long-term budget outlook, and the impact of various policy alternatives on spending and debt levels. The slides analyze factors like the aging population, rising health care costs, and the timing and scale of policy changes needed to control the growth of federal debt.
This document summarizes the Congressional Budget Office's analysis of FEMA's rate-setting methods for the National Flood Insurance Program. It finds that while the NFIP aims to help property owners and limit federal costs, its rates are not fully actuarially sound by design due to subsidies. FEMA sets national rates using flood maps and models, but this leads to cross-subsidies between lower- and higher-risk properties. Factors like outdated maps, short flood records, and grandfathered properties contribute to deficits, while safety margins have contributed to surpluses in some cases.
Presentation by Presentation by Keith Hall, CBO Director, at the Robert H. Smith School of Business, University of Maryland.
Since 1975, CBO has produced nonpartisan analyses of budgetary and economic issues to support the Congressional budget process. Each year, the agency’s economists and budget analysts produce dozens of reports and hundreds of cost estimates for proposed legislation.
One such report is the annual Budget and Economic Outlook, which is generally released each January and updated in August, and projects economic and budget outcomes under the assumption that current laws regarding federal spending and revenues generally remain in place. Those baseline projections cover the 10-year period used in the Congressional budget process. This presentation includes some key elements of those projections.
The federal budget will look very different in the future compared to the past. Under current law, federal debt will be much larger relative to the economy and a much larger share of spending will go to benefits for older Americans and healthcare. To put federal debt on a sustainable path, significant changes will need to be made through reducing benefits, raising taxes, or a combination of both. The Congressional Budget Office presentation outlines these future budget challenges and some options for addressing rising spending and debt.
On April 12, 2016, CBO Deputy Director Robert Sunshine presented at the 8th Annual Meeting of OECD Parliamentary Budget Officials and Independent Fiscal Institutions.
The OECD (Organisation for Economic Co-operation and Development) defines fiscal transparency as the full disclosure of all relevant fiscal information in a timely and systematic manner. Each year, CBO produces numerous products that provide such information to the Congress, and through its website, to other interested parties and the general public. This presentation describes several of those products.
1) The Congressional Budget Office analyzed approaches to reduce federal spending on military compensation. One approach is reforming the military retirement system from the current defined benefit system to a blended defined benefit and defined contribution system similar to private sector plans.
2) The Senate-passed version of the FY2016 National Defense Authorization Act included provisions to reform military retirement such as reducing the defined benefit multiplier, adding a defined contribution plan with government matching, and continuation pay to retain personnel.
3) CBO estimates this proposal would increase the deficit over 10 years but reduce DoD's spending, as the accrual payments to the retirement trust fund would decrease by more than the increases in other retirement costs.
Presentation by David Austin, an Analyst in CBO’s Microeconomics Studies Division, at the 2016 Allied Social Science Associations Meetings.
Although freight transport contributes significantly to the productivity of the U.S. economy, it also involves sizable costs to society. Those costs include wear and tear on roads and bridges; delays caused by traffic congestion; injuries, fatalities, and property damage from accidents; and harmful effects from exhaust emissions. No one pays those external costs directly—neither freight haulers, nor shippers, nor consumers. The unpriced external costs of transporting freight by truck (per ton-mile) are around eight times higher than by rail; those costs net of existing taxes represent about 20 percent of the cost of truck transport and about 11 percent of the cost of rail transport. This presentation examines policy options to address those unpriced external costs.
Presentation by Theresa Gullo, CBO's Director of Budget Analysis, to the Organisation for Economic Co-operation and Development's Committee of Senior Budget Officials.
As part of its mandate to provide nonpartisan analyses to the Congress, CBO produces baseline projections for the economy and the federal budget. Those projections are used in CBO’s cost estimates for proposed federal legislation and in CBO’s analytical reports. This presentation describes how CBO produces its baseline projections.
Presentation by Theresa Gullo, CBO’s Assistant Director for Budget Analysis, and John McClelland, CBO’s Assistant Director for Tax Analysis, at a joint seminar with the Congressional Research Service.
Ready for the next recession? Assessing the UK’s macroeconomic frameworkResolutionFoundation
The UK economy is facing its highest risk of recession since 2007, as Brexit uncertainty and global instability loom large. When the next downturn will arrive is impossible to say, but now is a good time to ensure that we are ready to respond. Crucially the world has moved on since we last prepared our framework – the tools we used to fight the last recession won’t necessarily work for the next one.
How severe are the constraints of near zero interest rates on monetary policy? What is the potential for Quantitative Easing to replay its major financial crisis role? And while there is a generally accepted case for a wider role for fiscal policy, are we ready to deploy it as effectively as possible?
The Resolution Foundation is setting up a new Macroeconomic Policy Unit to get to the bottom of these big economic questions and more. To mark its launch, the Foundation hosted an event that brought together leading macroeconomists and policy makers. The launch included the publishing of a comprehensive assessment of the UK’s current macroeconomic policy framework. Speakers included MPC Member Gertjan Vlieghe and Head of Bloomberg Economics Stephanie Flanders.
Speakers:
Gertjan Vlieghe, Member of the Monetary Policy Committee
Stephanie Flanders, Head of Bloomberg Economics
Kate Barker, Former MPC member
Rupert Harrison, Portfolio Manager at Blackrock
James Smith, Research Director at the Resolution Foundation
Torsten Bell, Chief Executive of the Resolution Foundation (Chair)
The Congressional Budget Office (CBO) provides Congress with budget and economic analyses. The CBO develops a baseline budget projection using its economic forecast and assuming current laws remain in place. The baseline includes projections for mandatory spending, discretionary spending, revenues, interest costs, deficits, and federal debt over 10 years. The CBO's current baseline projects that deficits will increase in coming years, federal debt will rise significantly, and debt held by the public will reach 96% of GDP by 2028 under current law.
CBO uses several models to analyze the effects of fiscal policy. In CBO’s view, changes in fiscal policy affect the economy in both the short and long term:
Short-term effects are driven by changes in the demand for goods and services (such as consumption and investment) and changes in supply-side factors (such as growth in productivity and the supply of labor), as well as by the interactions between them.
Long-term effects are primarily driven by changes in supply-side factors such as national saving, productivity, and people’s incentives to work, save, and invest.
The life-cycle growth model (also called an overlapping-generations, or OLG, model) is one model that CBO uses to estimate the long-term effects of changes in fiscal policy. CBO uses the model to analyze the effects of fiscal policy on the following:
People’s incentives to work and save; the distribution of income, wealth, consumption, and taxes across households; and
the well-being of different generations of households.
The life-cycle growth model is one model that CBO uses to estimate the long-term effects of changes in fiscal policy. For example, the model can analyze the effects of changes to the Social Security system.
The Budget and Economic Outlook is one of the flagship publications of the Congressional Budget Office. The report provides economic and federal budget projections that incorporate the assumption that current laws governing federal spending and revenues generally remain in place. Those baseline projections cover the 10-year period used in the Congressional budget process. The report generally describes the differences between the current projections and previous ones; compares the economic forecast with those of other forecasters; and shows the budgetary impact of some alternative policy assumptions. This presentation describes how the report is produced and how it can be used for economic analysis, providing examples from the April 2018 edition.
Presentation by Jeffrey F. Werling, Assistant Director of CBO’s Macroeconomic Analysis Division, to the National Association of Forensic Economics, at the Southern Economic Association Annual Meetings, November 18, 2018.
To support the Congressional budget process, CBO provides the Congress with objective, nonpartisan, and timely analyses of legislative proposals and of budgetary and economic issues. This presentation highlights CBO’s process for developing its economic forecast and baseline budget projections and provides an overview of the current forecast and projections.
Presentation by Robert Arnold, Chief of the Projections Unit in CBO’s Macroeconomic Analysis Division, and Christina Hawley Anthony, Chief of the Projections Unit in CBO’s Budget Analysis Division, at the NABE Foundation’s 15th Annual Economic Measurement Seminar.
The Congressional Budget Office develops long-term economic projections to underlie its 30-year budget projections. It uses a model called CBOLT that incorporates demographic projections and assumes current laws generally remain unchanged. CBOLT projects key economic inputs like productivity and labor force participation based on historical trends. It then models how the economy would respond to scheduled spending and revenue changes to produce long-term economic projections for variables like GDP, incomes and interest rates.
CBO makes baseline economic and budget projections covering the next 10 years and also the next 30 years. The projections incorporate the assumption that current laws generally do not change. To produce the 30-year economic projections, CBO uses its policy growth model, which relies on a standard economic framework that focuses on the inputs that drive growth in the supply side of the economy: the amount of labor, the productive services provided by capital, and total factor productivity.
Presentation by Wendy Edelberg, an Associate Director for Economic Analysis at CBO, and Jeffrey Werling, Assistant Director of CBO's Macroeconomic Analysis Division, at the 2019 Social Security Technical Panel.
The document summarizes CBO's use of evidence in analyzing budget and economic policies. CBO provides objective analysis to Congress on various topics, including federal spending, revenues, and the effects of legislation. CBO uses a range of evidence from research studies, data, and expert consultation to make projections and cost estimates. CBO aims to characterize the uncertainty around estimates and clearly explain its analytical methods and use of evidence.
Presentation by Jeff Werling, Assistant Director, Macroeconomic Analysis Division, for the REALTOR® University Speaker Series.
In fiscal year 2016, for the first time since 2009, the federal budget deficit increased in relation to the nation’s economic output. The Congressional Budget Office projects that over the next decade, if current laws remained generally unchanged, budget deficits would eventually follow an upward trajectory—the result of strong growth in spending for retirement and health care programs targeted to older people and rising interest payments on the government’s debt, accompanied by only modest growth in revenue collections. Those accumulating deficits would drive debt held by the public from its already high level up to its highest percentage of gross domestic product (GDP) since shortly after World War II.
This document discusses key aspects of fiscal policy and the federal budget in the United States. It begins by defining the federal budget and its two main purposes of financing government activities and achieving macroeconomic goals. It then explains how fiscal policy uses changes in government spending and taxes to influence aggregate demand and achieve full employment, inflation control, and economic growth. The document also discusses the effects of expansionary and contractionary fiscal policy, discretionary versus built-in (automatic) fiscal policy, and how to evaluate the stance of fiscal policy using cyclically adjusted budget deficits and surpluses.
Presentation at the Fifth Biennial Conference of the American Society of Health Economists, by Allison Percy, Health, Retirement, and Long-Term Analysis Division
Microsimulation of Demand for Health Insurance- A Method Based on ElasticitiesDr Dev Kambhampati
The document describes the Congressional Budget Office's Health Insurance Simulation Model (HISIM) which is a microsimulation model used to estimate the budgetary and coverage effects of health insurance proposals including the Affordable Care Act. The model uses individual-level data and elasticities to simulate how individuals and employers would respond to changes in policy and estimates the resulting impacts on federal spending and insurance coverage. Recent applications of the model estimated that the Affordable Care Act would reduce the number of uninsured Americans and result in net increased federal spending of over $1 trillion from 2015 to 2024.
The Congressional Budget Office (CBO) estimates the budgetary impacts of prevention policies by:
1) Establishing baselines for health risks, spending, and outcomes and projecting them over time.
2) Estimating behavioral responses to policies and how these affect health.
3) Calculating how changes in health, spending, and the economy feedback into federal spending and revenues over decades.
The CBO uses this framework to analyze policies like cigarette taxes, estimating long-term effects on outcomes like longevity, spending, the deficit, and challenges in the evidence.
Presentation by Megan Carroll, an analyst for CBO’s Budget Analysis Division, at the Department of Commerce Resource Management Conference.
Since 1975, CBO has produced nonpartisan analyses of budgetary and economic issues to support the Congressional budget process. Each year, the agency’s economists and budget analysts produce dozens of reports and hundreds of cost estimates for proposed legislation. This presentation makes key points related to CBO’s cost estimates for proposed legislation and how they relate to budget enforcement procedures.
This slide deck outlines the models CBO uses to assess the budgetary effects of alternative economic scenarios such as those presented in CBO’s Current View of the Economy in 2023 and 2024 and the Budgetary Implications (November 2022).
KEY TAKE AWAYS
Objectives
Definition
Basic macroeconomic concepts
Types of Macro economic Policy
Monetary Policy
Fiscal Policy
Comparison between Monetary and Fiscal Policy
Features of Macroeconomic Policy
Effect of Macro economic Policy
Importance of Macroeconomic Policy
Weakness of Macroeconomics Policy
Conclusion
Presentation by Julie Topoleski, CBO’s Director of Labor, Income Security, and Long-Term Analysis, at the 16th Annual Meeting of the OECD Working Party of Parliamentary Budget Officials and Independent Fiscal Institutions.
Presentation by Rebecca Sachs and Joshua Varcie, analysts in CBO’s Health Analysis Division, at the 13th Annual Conference of the American Society of Health Economists.
Presentation by Jared Jageler, David Adler, Noelia Duchovny, and Evan Herrnstadt, analysts in CBO’s Microeconomic Studies and Health Analysis Divisions, at the Association of Environmental and Resource Economists Summer Conference.
Presentation by Mark Hadley, CBO's Chief Operating Officer and General Counsel, at the 2nd NABO-OECD Annual Conference of Asian Parliamentary Budget Officials.
Presentation by Daria Pelech, an analyst in CBO’s Health Analysis Division, at the Center for Health Insurance Reform McCourt School of Public Policy, Georgetown University.
This slide deck highlights CBO’s key findings about the outlook for the economy as described in its new report, The Budget and Economic Outlook: 2024 to 2034.
Presentation by CBO analysts Rebecca Heller, Shannon Mok, and James Pearce, and Census Bureau research economist Jonathan Rothbaum at the American Economic Association Annual Meeting, Committee on Economic Statistics.
Presentation by Eric J. Labs, an analyst in CBO’s National Security Division, at the Bank of America 2024 Defense Outlook and Commercial Aerospace Forum.
FT author
Amanda Chu
US Energy Reporter
PREMIUM
June 20 2024
Good morning and welcome back to Energy Source, coming to you from New York, where the city swelters in its first heatwave of the season.
Nearly 80 million people were under alerts in the US north-east and midwest yesterday as temperatures in some municipalities reached record highs in a test to the country’s rickety power grid.
In other news, the Financial Times has a new Big Read this morning on Russia’s grip on nuclear power. Despite sanctions on its economy, the Kremlin continues to be an unrivalled exporter of nuclear power plants, building more than half of all reactors under construction globally. Read how Moscow is using these projects to wield global influence.
Today’s Energy Source dives into the latest Statistical Review of World Energy, the industry’s annual stocktake of global energy consumption. The report was published for more than 70 years by BP before it was passed over to the Energy Institute last year. The oil major remains a contributor.
Data Drill looks at a new analysis from the World Bank showing gas flaring is at a four-year high.
Thanks for reading,
Amanda
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New report offers sobering view of the energy transition
Every year the Statistical Review of World Energy offers a behemoth of data on the state of the global energy market. This year’s findings highlight the world’s insatiable demand for energy and the need to speed up the pace of decarbonisation.
Here are our four main takeaways from this year’s report:
Fossil fuel consumption — and emissions — are at record highs
Countries burnt record amounts of oil and coal last year, sending global fossil fuel consumption and emissions to all-time highs, the Energy Institute reported. Oil demand grew 2.6 per cent, surpassing 100mn barrels per day for the first time.
Meanwhile, the share of fossil fuels in the energy mix declined slightly by half a percentage point, but still made up more than 81 per cent of consumption.
Jennifer Schaus and Associates hosts a complimentary webinar series on The FAR in 2024. Join the webinars on Wednesdays and Fridays at noon, eastern.
Recordings are on YouTube and the company website.
https://www.youtube.com/@jenniferschaus/videos
The Power of Community Newsletters: A Case Study from Wolverton and Greenleys...Scribe
YOU WILL DISCOVER:
The engaging history and evolution of Wolverton and Greenleys Town Council's newsletter
Strategies for producing a successful community newsletter and generating income through advertising
The decision-making process behind moving newsletter design from in-house to outsourcing and its impacts
Dive into the success story of Wolverton and Greenleys Town Council's newsletter in this insightful webinar. Hear from Mandy Shipp and Jemma English about the newsletter's journey from its inception to becoming a vital part of their community's communication, including its history, production process, and revenue generation through advertising. Discover the reasons behind outsourcing its design and the benefits this brought. Ideal for anyone involved in community engagement or interested in starting their own newsletter.
1. Congressional Budget Office
Dynamic Scoring at CBO
NABE Foundation, 12th Annual Economic Measurement Seminar
Four Seasons Hotel, Washington, D.C.
Ben Page
Unit Chief, Fiscal Policy Studies
July 21, 2015
2. 1C O N G R E S S I O N A L B U D G E T O F F I C E
Overview
■ New requirement for dynamic scoring
■ CBO’s approach to analyzing effects of fiscal policy
■ Case study: A dynamic estimate of repealing the
Affordable Care Act
3. 2C O N G R E S S I O N A L B U D G E T O F F I C E
The New Requirement for Dynamic Scoring
4. 3C O N G R E S S I O N A L B U D G E T O F F I C E
Main Points
■ The requirement to estimate the budgetary feedback of
macroeconomic effects applies to major legislation
■ Conventional cost estimates already incorporate behavioral
responses but not changes in broad economic variables
■ CBO has regularly done estimates of the budgetary feedback
of macroeconomic effects but generally not for cost estimates
for legislation
5. 4C O N G R E S S I O N A L B U D G E T O F F I C E
Requirements Under 2016 Budget Resolution
■ To the greatest extent practicable, CBO and JCT shall incorporate the
budgetary effects of changes in macroeconomic variables resulting
from legislation that
– Has a gross budgetary effect of 0.25 percent of GDP in any year over the
next 10 years (an amount equal to about $45 billion in 2015) or
– Is designated by one of the Chairmen of the Budget Committees
■ Estimates shall also include a qualitative assessment of the
budgetary effects (including macroeconomic effects) for the
subsequent 20-year period
■ Appropriation acts are excluded
■ CBO and JCT will coordinate on legislation that significantly affects
both spending and tax policies
6. 5C O N G R E S S I O N A L B U D G E T O F F I C E
Behavioral Responses Addressed in Conventional
Cost Estimates
■ If proposed policies would affect people’s behavior in ways
that would generate direct budgetary savings or costs, the
effects are incorporated in CBO’s cost estimates
– The change in production of various crops that would result from
adopting new farm policies
– The likelihood that people would take up certain government benefits
if policies pertaining to those benefits were changed
– The quantity of health care services that would be provided if
Medicare’s payment rates to providers were adjusted
■ By long-standing convention, CBO’s cost estimates generally
have not reflected changes in behavior that would affect total
output in the economy, such as any changes in labor supply or
private investment resulting from changes in fiscal policy
7. 6C O N G R E S S I O N A L B U D G E T O F F I C E
The New Requirement Extends Previous Analyses by CBO
■ CBO has routinely produced estimates of the macroeconomic effects
of fiscal policies and of the feedback from those macroeconomic
changes to the federal budget
– Analysis of the President’s budget
– Annual long-term budget and economic outlook
– Analyses of illustrative fiscal policy scenarios
■ CBO has generally not produced such estimates for specific
legislation prior to the 2016 budget resolution. One exception:
S. 744, the Border Security, Economic Opportunity, and Immigration
Modernization Act
– Because the bill would have significantly increased the size of the
U.S. labor force, CBO and JCT incorporated in the cost estimate their
projections of the direct effects of the act on the U.S. population,
employment, and taxable compensation
– CBO separately published analysis of additional economic effects and their
feedback to the budget
8. 7C O N G R E S S I O N A L B U D G E T O F F I C E
CBO’s Approach to Dynamic Analysis
9. 8C O N G R E S S I O N A L B U D G E T O F F I C E
CBO’s Approach to Analyzing Economic Effects of
Fiscal Policies
■ Short term: Changes in fiscal policies affect the overall
economy primarily by influencing the demand for goods and
services by consumers, businesses, and governments, which
leads to changes in output relative to potential (maximum
sustainable) output
■ Long term: Changes in fiscal policies affect output primarily by
altering national saving, federal investment, and people’s
incentives to work and save, as well as businesses’ incentives
to invest, thereby changing potential output
10. 9C O N G R E S S I O N A L B U D G E T O F F I C E
Central Estimates and Ranges
■ CBO’s estimates of those effects are based on parameters such
as the extent to which national saving is altered by changes in
fiscal policies
■ In most cases, CBO estimates the economic effects (and
feedback to the budget) using a range of parameter estimates
reflecting the consensus in the economic literature
■ To arrive at its estimate of the economic effects, CBO uses the
central estimates for those parameters
11. 10C O N G R E S S I O N A L B U D G E T O F F I C E
Short-Term Effects From Changes in Demand
■ Direct contributions to aggregate demand from changes in
purchases by federal agencies and those who receive federal
payments and pay taxes
■ The change in output for each dollar of direct contribution to
demand (the “demand multiplier”) varies with the response of
monetary policy
■ In CBO’s estimates of indirect effects:
– When the monetary policy response is likely to be limited, the demand
multiplier over four quarters ranges from 0.5 to 2.5, with a central
estimate of 1.5
– When the monetary policy response is likely to be stronger, the
demand multiplier over four quarters ranges from 0.4 to 1.9, with a
central estimate of 1.2; over eight quarters, it ranges from 0.2 to 0.8,
with a central estimate of 0.5
12. 11C O N G R E S S I O N A L B U D G E T O F F I C E
Short-Term Effects From Changes in Labor Supply
■ Effects on the supply of labor lead to changes in
employment, depending on the amount of slack in
the labor market
13. 12C O N G R E S S I O N A L B U D G E T O F F I C E
Long-Term Effects
■ CBO uses two models of potential output to estimate the effects
of changes in fiscal policies on the overall economy over the long
term
– Solow-type growth model
– Life-cycle growth model
■ Potential output depends on
– Amount and quality of labor and capital (which depend on work,
saving, and investment)
– Productivity of the labor and capital inputs (which depends in part on
federal investment)
– Amount of national saving (which depends in part on federal
borrowing)
14. 13C O N G R E S S I O N A L B U D G E T O F F I C E
The Role of Expectations About Fiscal Policy
■ Solow-type growth model
– People base their decisions about working and saving primarily on
current economic conditions, including government policies
– Decisions reflect people’s anticipation of future policies in a general
way but not their responses to specific future developments
■ Life-cycle growth model
– People make choices about working and saving in response to both
current economic conditions and their explicit expectations of future
economic conditions
– The model requires specification of future fiscal policies that put
federal debt on a sustainable path over the long run because forward-
looking households would not hold government bonds if the
households expected that debt as a percentage of GDP would rise
without limit
15. 14C O N G R E S S I O N A L B U D G E T O F F I C E
How Labor Supply Responds to Changes in
Fiscal Policy in the Solow-Type Growth Model
■ The overall effects of a policy change on the labor supply can
be expressed as an elasticity, which is the percentage change
in the labor supply resulting from a 1 percent change in after-
tax income
– Substitution effect: Increased after-tax compensation for an additional
hour of work makes work more valuable relative to other uses of a
person’s time
– Income effect: Increased after-tax income from a given amount of work
allows people to maintain the same standard of living while working
fewer hours
16. 15C O N G R E S S I O N A L B U D G E T O F F I C E
How Labor Supply Responds to Changes in
Fiscal Policy in the Solow-Type Growth Model (Continued)
■ CBO’s central estimate corresponds to an earnings-weighted
total wage elasticity for all earners of 0.19 (composed of a
substitution elasticity of 0.24 and an income elasticity of -0.05)
■ For some proposals, income and substitution effects may not
offset each other (for example, if the proposal would increase
after-tax wages but reduce income)
■ CBO estimates that the substitution elasticity could range from
a low estimate of about 0.16 to a high estimate of about 0.32;
the income elasticity could range from about -0.10 to about 0
17. 16C O N G R E S S I O N A L B U D G E T O F F I C E
Other Key Aspects of the Solow-Type Growth Model
■ When the deficit increases by one dollar
– Private saving is estimated to rise by 43 cents (national saving falls by
57 cents), and net capital inflows rise by 24 cents, ultimately leaving a
decline of 33 cents in investment
– Full range of estimates: The decline in investment ranges from 15 cents
to 50 cents
■ Additional federal investment is estimated to yield half of the
typical return on investment completed by the private sector
– The full range of estimates goes from no return on investment to the
typical return on investment completed by the private sector
18. 17C O N G R E S S I O N A L B U D G E T O F F I C E
Key Aspects of the Life-Cycle Growth Model
■ Labor supply and private saving are influenced by the current
values and future anticipated values of the after-tax rate of
return on saving, the after-tax wage, and households’
disposable income, among other factors
■ The elasticity with respect to a one-time temporary change in
wages (the so-called Frisch elasticity) is 0.40, according to
CBO’s central estimates, with a full range from 0.27 to 0.53
– Frisch elasticity is calibrated to be consistent with CBO’s estimate of the
total wage elasticity
■ Because of the uncertainty that households face about their
future income, households in the life-cycle growth model take
the precaution of holding additional savings as a buffer against
potential drops in income
19. 18C O N G R E S S I O N A L B U D G E T O F F I C E
Range of Estimates Within the Life-Cycle Growth Model
■ A small open economy (in which wages and interest rates are
determined by world markets) versus a closed economy (in
which wages and interest rates are determined domestically)
■ Different kinds of closure rules
– Because the model is forward-looking, it requires offsetting policy
changes that stabilize government debt
– Beginning in 15 years, those policies would be phased in over 10 years
• Reduced spending (half from government purchases and half from
transfers)
• Increased taxes (half from marginal rate changes and half in lump-sum
amounts)
– Both closure rules are reported, and results generally are similar
20. 19C O N G R E S S I O N A L B U D G E T O F F I C E
Uncertainty in Budgetary Outcomes
■ When practicable and informative, CBO will report the estimated range of
budgetary outcomes owing to the uncertainty of macroeconomic effects
– Need to consider the uncertainty regarding feedback relative to the ability to describe
uncertainty of the conventional cost estimate
■ CBO will report range of Solow-type growth model estimates
– Differences between Solow-type growth model results and those of the life-cycle growth
model reflect model uncertainty, rather than parameter uncertainty—making
interpretation difficult
■ The likelihood that all parameters would simultaneously be at the ends of
their ranges is smaller than the likelihood that any single parameter would
be at the end of its range. CBO will
– Focus on uncertainty about the two parameters that have the largest budgetary effects
– Examine estimates resulting from cases in which two parameters are at the ends of their
ranges and other parameters are equal to central estimates
■ The agency will report cases that show the most favorable and least
favorable budgetary outcomes
21. 20C O N G R E S S I O N A L B U D G E T O F F I C E
Presentation of Macroeconomic Analyses in Cost Estimates
■ Presentation will probably evolve over time as CBO learns
what is most useful
■ Estimates will show all of the information that traditionally
would be included if macroeconomic effects were not
incorporated and will identify the macroeconomic effects
separately
■ Estimates will provide information related to the uncertainty
of the macroeconomic effects
22. 21C O N G R E S S I O N A L B U D G E T O F F I C E
Case Study: A Dynamic Estimate of
Repealing the Affordable Care Act
23. 22C O N G R E S S I O N A L B U D G E T O F F I C E
Conclusions
■ Analysis used long-standing procedures, models, and estimates—
but applied them in a new way
■ There is substantial uncertainty about budgetary effects and
macroeconomic feedbacks
■ Over the next decade, the uncertainty is large enough that repealing
the ACA could reduce cumulative deficits—or increase them by
much more than estimated
■ ACA repeal includes large offsetting changes to spending and
revenues
■ In CBO’s analyses of other policies, macroeconomic feedback has
been less significant relative to the estimated cost without
macroeconomic feedback
24. 23C O N G R E S S I O N A L B U D G E T O F F I C E
Details of the Analysis of Repealing the
Affordable Care Act
■ At the request of the Chairman of the Senate Budget Committee, CBO
and JCT analyzed the budgetary cost of repealing the ACA, including
macroeconomic feedback
■ With that feedback, CBO and JCT estimate that repealing the ACA would
increase federal budget deficits by $137 billion over the 2016-2025 period
– Excluding feedback, deficits would increase by $353 billion
– Feedback reduces deficits by $216 billion
■ Over the 2026-2035 period, repealing the ACA would increase deficits
substantially, with or without macroeconomic effects
■ The estimates include a high degree of uncertainty
– Over the 2016-2025 period, repeal could reduce deficits or increase them by much more
than estimated
– Over the 2026-2035 period, repeal would be unlikely to reduce deficits, even given great
uncertainty
25. 24C O N G R E S S I O N A L B U D G E T O F F I C E
Effects of Repeal of the Affordable Care Act on Labor
Markets
■ Repeal of the ACA would affect labor markets in a number of ways.
CBO estimates that the provisions with the largest effects are these:
– Subsidies that phase out with increasing income would be eliminated, raising work
incentives and therefore labor supply
– Elimination of subsidies and Medicaid expansion would reduce people’s available
resources, increasing labor supply
– Elimination of provisions that lower the cost of health insurance plans offered to older
workers outside the workplace would cause some workers to delay retirement,
increasing labor supply
– Elimination of exchange subsidies would decrease the incentive to work for many
low-income people because of interactions with Medicaid eligibility requirements,
reducing labor supply
– Employer mandate would be eliminated, raising labor demand in the short run and labor
supply in the long run as wages adjust
– Increased HI payroll tax for high earners and high-premium excise tax would be
eliminated, increasing work incentives and therefore labor supply
26. 25C O N G R E S S I O N A L B U D G E T O F F I C E
Effects of Repeal of the Affordable Care Act on Labor
Markets (Continued)
■ Overall, repeal of the ACA is estimated to increase aggregate
hours worked by about 1.5 percent between 2021 and 2025
– Previous estimate was about 1.5 to 2 percent
■ That increase in hours translates into an increase in aggregate
compensation of between 0.8 percent and 0.9 percent over
the same period
– Previous estimate was about 1 percent
■ Hours worked rise by more than compensation because lower-
wage workers would be most strongly affected by the repeal,
so they would change labor supply the most
27. 26C O N G R E S S I O N A L B U D G E T O F F I C E
Other Macroeconomic Effects of Repeal of the
Affordable Care Act
■ Aggregate demand would be slightly lower in the short run
– Redistribution from lower-income benefit recipients to higher-income
taxpayers and medical care providers
■ CBO used the Solow-type growth model to estimate the
longer-run GDP effects
■ Larger labor supply would lead to increased investment and a
larger capital stock
– Effect offset somewhat by increased deficits, which crowd out capital
■ Output would be roughly unchanged in 2016 but higher in
later years
■ Interest rates would be higher
– Capital-labor ratio falls with larger labor supply, increasing the marginal
product of capital and therefore interest rates
28. 27C O N G R E S S I O N A L B U D G E T O F F I C E
Macroeconomic Feedback Effects of Repealing the
Affordable Care Act
■ Higher output would increase revenues and modestly increase
primary spending
– Revenues depend on taxable income of different types, with different
effective marginal tax rates
– Outlays depend more on prices than real output
■ Higher interest rates would increase federal interest payments
on the national debt
■ Feedback effects would lower deficits throughout the
2016–2025 period
■ Feedback effects would increase for some time because the
effects of the ACA, and therefore repeal, phase in over time
but would ultimately fall as the effects of higher deficits
became more important
29. 28C O N G R E S S I O N A L B U D G E T O F F I C E
Summary of Estimated Effects on Direct Spending and
Revenues of Repealing the Affordable Care Act
Billions of Dollars, by Fiscal Year
30. 29C O N G R E S S I O N A L B U D G E T O F F I C E
Estimated Effects on Deficits of Repealing the Affordable
Care Act
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
-50
-25
0
25
50
75
100
125
150
Without
Macroeconomic
Feedback
With
Macroeconomic
Feedback
Billions of Dollars, by Fiscal Year
31. 30C O N G R E S S I O N A L B U D G E T O F F I C E
Additional Resources
■ Answers to Questions for the Record Following a Hearing on the Budget and
Economic Outlook for 2015 to 2025 Conducted by the House Committee on
the Budget (March 2015), www.cbo.gov/publication/49975
■ Macroeconomic Analysis of Legislative Proposals (May 2013),
www.cbo.gov/publication/44165
■ How CBO Analyzes the Effects of Changes in Federal Fiscal Policies on the
Economy (November 2014), www.cbo.gov/publication/49494
■ Budgetary and Economic Effects of Repealing the Affordable Care Act (June
2015), www.cbo.gov/publication/50252
■ The Budget and Economic Outlook: 2014 to 2024 (February 2014),
Appendix C (pp. 117-127), www.cbo.gov/publication/45010
■ The Economic Effects of the President’s 2015 Budget (July 2014),
www.cbo.gov/publication/45540