government shutdown

government shutdown

The Impact of Government Shutdowns: A Comprehensive Analysis

1. Introduction to Government Shutdowns

In this article, we identify many of these blanks and discuss what we view as important outstanding research questions about shutdowns. We begin by defining what we mean by a government shutdown and then consider various quantitative measures of the government’s financial and economic position. In each case, we focus on understanding how these measures are affected by recent shutdowns. In some cases, such as revenues or outlays, we show that we can use existing data to infer something about the government’s economic activities. In others, such as the distribution of debt across maturities (part of the government’s overall issuance activity), we conclude that we cannot judge shutdowns’ impact using existing data and encourage government statistical agencies to begin collecting the needed information. The article concludes with a set of research questions on which we would like to see work by scholars and practitioners.

While the term “shutdown” is intuitively clear, government shutdowns have actually raised many controversial questions for constitutional law, statutory interpretation, and government institutions. When does the government shut down? Does it truly grind to a halt? Do certain essential services continue uninterrupted? Can shutdowns cause political “hostage taking” or other actions of dubious constitutionality? Who can be blamed, and therefore how should the political branches, especially Congress, respond to these dangers? Answering these questions is difficult because our statistical measures of government economic and financial transactions are not designed to capture unusual or advanced spending and financing arrangements undertaken by federal agencies, nor are they adequate for capturing the special transactions entered into by the government during and following a shutdown. As a result, we do not know what most agencies and employees continue to work during a shutdown, which programs are absent important or normally available self-financing funds, or other important details.

2. Causes and Triggers of Government Shutdowns

The issue had already been briefly touched upon in the general Theory of Constitutional Democracy by Buchanan. The procedure of passing the budget acts in the US is crucial for the occurrence of government shutdowns since several states have an informal, if not formal, balanced budget requirement and are not allowed to run any deficits.

Most of the literature on government shutdowns has been focused on a partial or full explanation of the latest extreme cases in the U.S. in 1995-1996, during the Clinton administration. However, the causes and triggers of government shutdowns in other parts of the world are several, involving political, economic, tactical-party, and a set of institutional variables. The main division in the literature is between those who argue that these events are a voluntary, tactical-party strategy and those—usually involving game theoretical models—who argue that they have accidental or intrinsic causes. Much of the focus of the literature on government shutdowns is on the United States and stems from New York’s previous work, but Buchanan’s earlier interest in the topic, the high number of events since 1980, has naturally led to this focus.

3. Economic and Social Consequences of Government Shutdowns

Unlike most sectors of the economy, there is no buffer stock of service inventories that could be utilized if government employees walk out. This lack of a visible impact of a partial government shutdown can lead some people to incorrectly believe that the government is unnecessary. Government decisions and analyses, however, can significantly affect private sector behavior. There is a wealth of psychometric evidence that the private provision of public services would result in a total cost that is higher than the cost of government. It is also likely that the presence of a buffer stock would enhance the economy during that time the cost of carrying the inventory was less than the benefits associated with providing the service at a later time. The absence of buffer inventories, however, does not mean that the economy is better off when there are government shutdowns.

There are two primary ways that government shutdowns are likely to influence economic activity: direct government services and the millions of government jobs. When the government suddenly ceases providing services, the private sector often cannot quickly fill the void. Partial closures are also likely to affect the solvency of related enterprises (e.g., defense contractors and tourist destinations). Private firms should also experience spillover losses from the inability to access publicly provided information and certification.

4. Mitigation Strategies and Solutions

Some new mechanisms that divest conflict-ridden legislative processes of block funding authority, thereby avoiding partial government shutdown approvals by inertia, have been discovered recently. Examples include multiyear appropriation earmarks, revolving funds, block grants, indexed trust funds, adjusting continuing resolutions with the rate of price change, countercyclical spending and contingency planning amendments, priced options to appropriate, bylaw positions to ensure the continuance of government services, funding schedules for all republic functions, and mechanism design. Each of these proposals could potentially reduce the costs associated with partial government shutdowns by increasing the incentives for self-acting resolutions during government funding disputes. However, research in this area is still in its infancy, as the lack of experience has made difficult the establishment of clear criteria for good, and a sound technique for their design. In the future, it is likely that countries will benefit from avoiding partial government shutdowns altogether, and that attempts to prevent them will be more common.

There are a number of initiatives that reduce the number of partial government shutdowns or financial hardships that shutdowns cause. They fall into two main categories: those that improve economic and fiscal policy-making in general and those introduced to deal specifically with government funding disputes. Policies that reduce ideologically driven government disagreements or that expand margins for disagreement over fiscal policy mechanically lead to fewer partial government shutdowns. These include disinflation, expanding the independence of the Federal Reserve System, discretionary fiscal policy making, proportional representation, reducing the public debt, and changing the form of government spending. Independent and credible fiscal institutions directly address these problems. Given the broad and plentiful literature identifying them and the policy-makers’ ability to appreciate their importance, a plausible explanation for the lack of widespread adoption of such institutions is that politicians’ commitment to avoiding disagreements and facilitate effective fiscal and economic policy-making for their own sake are also relevant.

5. Case Studies and Lessons Learned

This review contributes to the research by producing an estimate of economic damages arising from a government shutdown and assessing how the country’s businesses were affected. Moreover, the first application of the Input-Output Accounting System succeeds in the series as an ideal method for evaluating government shutdown impacts upon the commercial supply chain by delivering a characteristic view of the potential commercial repercussions. Ultimately, the shutdown case studies affirm that Pelosi and Slaughter’s standpoints about the societal costs of political conflicts are valid, although those pioneers did not concentrate strictly on budgetary shutdowns, and they dispute the implication of advocating periodic government shutdowns on spending-control-base.

The fourth part of this paper focuses on a comprehensive, data-driven study of how America’s government shutdowns affected various interests including the nation’s economic health, its security, the environment, labor in the workplace, the supply chain in the commercial marketplace, and general public well-being. These studies drive more informed decisions around political conflict by providing an “evidence-based” foundation for an honest evaluation of different policies or strike threats concerning the shutdown or budget impasse. The evidence represents questions of equity and fairness between the government as an employer and its employees in delivering services that the American people want.