CBPP Overview

How society chooses to address today’s major public policy challenges will fundamentally shape the future of the U.S. economy. The mission of the Center for Business and Public Policy at the University of Illinois is to promote rigorous research about how market forces and public policy shape one another, and to communicate these findings through innovative teaching and public engagement activities.

Aging populations, rising health care costs, global environmental challenges, systemic financial market risk, and other important policy challenges are likely to place substantial pressures on public and private resources in the decades ahead. The United States faces critical choices with regard to the mix of private market approaches and government policies that influence these issues.

Innovative research conducted by the faculty in the Center for Business and Public Policy analyzes programs and policies to advance discussion around the implications of these decisions for our regulatory framework, tax system, and the level and type of government spending. These issues have far-reaching consequences for the well-being of our citizens, the economic environment in which businesses operate, and the long-term growth of our economy.

Is Government Fiscal Policy Sustainable in the Long Run?

A rapidly aging population and rising per capita health care expenditures are placing tremendous pressure on the federal budget in the United States. In the absence of significant policy changes, the Congressional Budget Office reports that “under any plausible scenario - federal debt will grow much faster than the economy over the long run.” A rising debt-to-GDP ratio has the potential to impose substantial costs on the national economy and its citizens. As a result, current U.S. fiscal policy is on an unsustainable course, which could have lasting impacts on generations to come.

To return to a sustainable fiscal path, policymakers must either raise additional revenue, which has important implications for economic efficiency and growth, or find ways to reduce the rate of growth of government spending, which will require potentially major changes to the way our nation provides health care and retirement benefits. As our nation grapples with these difficult problems, it is critical that policymakers consider the role of the private sector in providing retirement and health benefits in order to design policies that preserve incentives for entrepreneurship, investment and long-term economic growth. Professor Jeffrey Brown combines award-winning research and significant policy experience to help formulate solutions, while educating students and the public about U.S. retirement, health care, and fiscal policies.

What Role Should Markets Play In Addressing Global Environmental Challenges?

Crafting sustainable environmental policies requires a partnership between businesses, policymakers, academics, and consumers. Yet finding that balance between realistic environmental goals and taxpayer costs can create very difficult regulatory challenges. It requires expertise in multiple fields, including scientific and technical disciplines, and it requires a deep understanding of economics and market functionality.

Professor Don Fullerton is one of the world’s leading experts on the application of economics to these pressing environmental challenges. His research has examined a wide range of environmental issues, including household recycling, green design, vehicle emissions, and global warming. In each case, the problem could be addressed by a tax on the pollutant, by direct regulation, or by a cap-and-trade permit system. Fullerton uses economic analysis to find the likely impact of the proposed policy on the functioning of private markets, including effects on outputs and prices, the amount of pollution, the cost of pollution control, and the distribution of those costs among households at different levels of income.

How Do Economic Policies Affect The Behavior of American Families?

Many public policies are designed to help low income individuals and families in the United States. In addition to helping citizens in need, however, many policies can produce unintended consequences due to behavioral responses that take advantage of program incentives. For example, rules designed to ensure that only individuals with low incomes are allowed to participate in welfare programs can create disincentives to save and work, fueling behaviors that often counteract program objectives.

Once in place, policies are difficult to change and can also create “winners” and “losers” within the program, making reform more challenging to implement. As a result, policy makers are increasingly aware of the need to analyze likely behavioral responses to new policies before they are introduced or altered nationwide. Professor Elizabeth Powers has analyzed the implications of social insurance and welfare policies both at a macroeconomic level and with specific regard to how individuals whose livelihoods depend on such programs are affected. Much of her research focuses on behavioral responses to public policies that explain how many families are discouraged from accumulating even modest savings.

What is the Proper Role of Government in Regulating the Financial Sector?

Regulators of the financial system have come a long way in understanding how to provide incentives to individual financial institutions that balance the costs and benefits of risk-taking. But the recent financial crisis has demonstrated that regulators still have not solved the problem of systemic risk – and in particular, the burdens that the risk-taking of one financial institution imposes on other institutions in our global financial system. Individual financial institutions are in the business of risk management, but they tend to place too little emphasis on risks that impact the entire economy. When a system-wide financial crisis occurs, it is often left to the government to try to rescue several institutions simultaneously.

Consequently, this presents government regulators with the difficult task of adjusting standards in response to economic conditions. During a system-wide crisis, regulators must loosen requirements in order to maintain economic activity, but such solutions often undermine the long-term stability of the financial system. In anticipation of these periods of relaxed enforcement, regulators must adhere to more stringent standards during prosperous times. Professor Charles Kahn is a leading authority on questions of systemic risk, contagion, financial fragility and the economics of payment systems. His research has examined the risks created by payment arrangements among financial intermediaries, liquidity creation, and international plus offshore settlement systems.