Economic Policy

Exploration of the intersection of policy and economic trends, public finance, and economic development

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IGPA Experts use cutting edge social science research methods to analyze public policy. Our independent evidence and analysis is non-partisan, data-driven, and based in the best academic scholarship available.
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The national picture of public pension changes

Authors

  • Nancy Hudspeth

This report provides a compilation of data on the changes to current employees' retirement contribution rates and post-retirement cost of living adjustments (COLAs) that have been enacted in the United States since 2009.


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Policy Initiative: none

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Pension reform roadmap

Authors

  • Andrew Crosby

The following analysis demonstrates that:

  • Savings to the state from SB2404 are around $0.5 billion to $1.5 billion per year, depending on how participants respond to incentives to accept reduced pension bene ts in order to keep health care coverage in retirement.
  • SB1 (assuming it survives a constitutional challenge) saves the state around $2 billion to $3 billion per year.
  • Neither are suf cient to eliminate the state’s budget de cit, which is projected to grow from $2 billion to $11 billion over the next ten years. 

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Broad interests, narrow interests, and the politics of the budgetary process

Authors

Interest politics, as opposed to party politics, make fixing Illinois’ budget problems very complex and difficult. All people and businesses have multiple and overlapping interests in what the state does. Thinking about broad and narrow interests helps understand them. Broad interests are those that many people hold weakly; for example, we all have an interest in a balanced state budget. Narrow interests are those that fewer people hold, but they often do so very strongly; for example, all teachers have an interest in higher pay for educators.


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Interactions among multiple partial budget solutions

Authors

This paper explains the benefit of taking a holistic approach to evaluating fiscal reforms. Different state taxes can interact in complicated ways, making the pros and cons of altering any one of them difficult to evaluate without considering all of them simultaneously. The discussion pertains primarily to tax policy, but the same point applies to government expenditures as well. Holistic analysis is valuable but extremely difficult, and so most analyses focus on one change at a time. To explain the holistic approach, examples are drawn from two particular areas.


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Policy Initiative: none

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Better fiscal planning

Authors

  • Nancy Hudspeth

In the wake of the Great Recession, state governments have struggled to manage their finances. Ongoing challenges include reductions in federal spending, rapidly rising health care and pension costs, and diminished receipts due to a sluggish economic recovery. Budget planning techniques (or tools) can help states make the difficult decisions needed to achieve fiscal sustainability.


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Policy Initiative: none

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Public opinion and political viability of budget tools

Authors

What are the political prospects of various plans to boost revenue or reduce spending? One way to answer is via opinion polls. Few say they support broad tax increases or spending cuts on education or Medicaid. Targeted taxes on the wealthy and reductions in benefits to state employees, by contrast, generate positive reactions. However, caution is always in order with polls. Some opinions seem open to change. For instance, support for raising taxes on the rich falls when people are told what rates they currently pay, on average.


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Benefits and costs of state budget changes to higher education

Authors

  • Walter W. McMahon

Higher education (and K-12) are different from other parts of the state budget. It is an investment in the creation of human capital skills used by the typical graduate for 60 years at work, at home, in the community, and after retirement. These skills generate the increased earnings and broader development that are the core of the state’s economy. The budget is affected as earnings generate tax revenues and the wider benefits of learning contribute to lower Medicaid, welfare, public health, and prison costs.


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Options for health care policy

Authors

Health care spending dominates the overall state budget in Illinois, with Medicaid dominating Illinois’ health care budget. The state already made substantial cuts to optional services in Medicaid in 2012. The state is looking towards aggressively pushing “care coordination” to the Medicaid program in the near term, but skepticism about the potential for cost savings is warranted. The scientific literature regarding the effects of disease management, care coordination, and Medicaid managed care generally does not suggest there are huge savings likely from these approaches.


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Policy Initiative: none

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Is it possible to make "easy" cuts to human services spending by attacking waste, fraud, and abuse?

Authors

Illinois has experienced a long run of cuts to its human services programs, yet still more cuts may be needed if new revenue or savings in other areas do not materialize. The view that many "welfare" recipients are gaming or exploiting the system is a popular one with the public. The promise to get tough on waste, fraud, and abuse is an appealing alternative to across-the-board cuts in human services or to reducing or eliminating specific benefits or programs.


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Across the board cuts

Authors

Cutting spending across the board is one approach to budget reduction that is prominent in political discussion. An across the board (ATB) cut would reduce budgets of all departments, agencies, or programs by the same percentage. The 2013 federal budget sequester was a form of ATB cutting.


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Policy Initiative: none

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