Can the Federal Budget Process Promote Fiscal Sustainability? Evidence from Synthetic Control Using Lasso

32 Pages Posted: 31 Dec 2019

See all articles by Denvil Duncan

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); Institute for the Study of Labor (IZA)

Justin M. Ross

Indiana University - School of Public & Environmental Affairs

John L. Mikesell

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Date Written: December 4, 2019

Abstract

Can the federal budget be constrained using congressionally self-imposed rules? The Budgetary Enforcement Act of 1990 (BEA90), in effect from 1992 to 2002, is frequently held up as an example of congressional control that largely succeeded in doing so and its expiration is considered a watershed event. This paper finds supportive evidence that BEA90 constrained non-defense discretionary outlays using a synthetic control/Lasso hybrid regression methodology. The estimated effect of BEA90 is around 10 percent. However, the sampling variation suggests the probability that these results arose from chance is around 30 percent. Confronted with a common applied empirical problem of having many potential predictors (over 2,000) and a short time-series (12 years), we propose novel additional checks that successfully cross-validate the synthetic control’s counterfactual model.

Keywords: federal budget, budget process

JEL Classification: H61, H50

Suggested Citation

Duncan, Denvil and Ross, Justin M. and Mikesell, John L., Can the Federal Budget Process Promote Fiscal Sustainability? Evidence from Synthetic Control Using Lasso (December 4, 2019). Available at SSRN: https://ssrn.com/abstract=3501850 or http://dx.doi.org/10.2139/ssrn.3501850

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Justin M. Ross (Contact Author)

Indiana University - School of Public & Environmental Affairs ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

John L. Mikesell

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States
812-855-0732 (Phone)
812-877-7802 (Fax)

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