How do the U.S. public’s beliefs about the federal debt affect their attitudes to government spending and taxation?
That is the question a new paper by economists Christopher Roth, Sonja Settele, and Johannes Wohlfart seek to answer, using a range of online experiments for a representative sample of the population. Using four different experiment designs, they first elicit people’s beliefs about the debt‐to‐GDP ratio compared to various historical or international averages. Then they tell a sub‐sample what the actual debt‐to‐GDP ratio is and compare this treatment group’s attitudes towards government spending and tax with a control group, as well as assessing the treatment group’s relative propensity to donate to Cato or sign a petition for a balanced budget amendment.
The results are interesting:
- Most people underestimate the degree of indebtedness of the US government. The median estimate is around 60 percent, far below the actual debt‐to‐GDP (104 percent at the time). More than 90 percent of respondents understated the level of debt, even when given a historical or international “anchor.”
- People who are told the true level of debt become more likely to consider current government debt too high and be supportive of cutting it. The relative preference for debt reduction in the treatment group compared to the control group is equivalent to 91 percent of the greater support for debt reduction among Republicans than among Democrats.
- Respondents with prior beliefs of a low debt‐to‐GDP ratio below 50 percent respond most strongly to the information in terms of their views on debt reduction and government spending.
- Data from a four‐week follow up survey suggests that people update their beliefs about the debt given the information: the median belief in the treatment group is that the debt‐to‐GDP ratio is 75 percent. What’s more, beliefs are more precise for both people that under‐ and over‐estimated the debt, suggesting genuine learning.
- The treatment group which learns about the true level of government debt becomes significantly less supportive of government spending, including in all subcategories – defense, infrastructure, schooling, social security, social insurance, health and the environment. Looking at a joint spending index, the information shifts policy preferences by one third of the preference gap for overall spending between Republicans and Democrats.
- Though people who learn about the debt become more likely to back higher taxes in theory, support for specific tax increases – income tax, wealth tax, and estate tax – are weaker and less robust. The authors conclude that the extra knowledge does not strongly change support for tax increases.
- The treatment group are more likely to donate a higher amount to the Cato Institute from an endowment of funds they are given. But treated respondents do not become significantly more willing to sign a petition in favor of introducing a balanced budget rule.
- The treatment group’s beliefs about the amount of government debt and their attitudes towards debt reduction and government spending persist in a four‐week follow up to the study.
- Respondents who receive information about the level of government debt become significantly more likely to agree that the current public finances are not sustainable.
The authors conclude:
our findings indicate that information about statistics that are relevant for future government spending and taxation can persistently change people’s attitudes towards current levels of spending…our finding that voters demand higher levels of spending when they underestimate the level of debt suggests that biased beliefs could contribute to the accumulation of high levels of debt as observed in many industrial countries. Finally, our results suggest that support for spending increases could diminish during times in which voters update their beliefs about government debt…
This might explain one puzzle from recent years. The results suggest that the decline in the salience of the debt issue doesn’t so much reflect an ease among the public with increased borrowing as the opposite: a lack of focus on the high relative level of debt has fed through into beliefs about debt levels that are biased downwards, making people tolerant of higher spending.