Economics Insights @ CBS

We use discounted cash flow analysis to measure the projected fiscal capacity of the U.S. federal government. We apply our valuation method to the CBO’s projections for the U.S. federal government’s primary deficits between 2022 and 2052 and projected debt outstanding in 2052. The discount rate for projected cash flows and future debt must include a GDP or market risk premium in recognition of the risk associated with future surpluses. Despite current low interest rates, we find that U.S. fiscal capacity is more limited than commonly thought.

We study the competitive provision and endogenous acquisition of political information. Our main result identifies a natural equilibrium channel through which a more competitive market decreases the efficiency of policy outcomes. A critical insight we put forward is that competition among information providers leads to informational specialization: firms provide relatively less information on issues that are of common interest and relatively more information on issues on which agents’ preferences are heterogeneous.

Supervisors are usually older, more educated, and longer tenured than their subordinates, a situation known as status congruence. However, subordinates are increasingly experiencing status incongruence, in which their supervisors lack these traditional status markers. We examine how status congruence versus incongruence interacts with subordinates’ judgments of their supervisors’ competence to influence subordinates’ perceptions of the promotion system.