How accurate are short-run and long-run budget scenarios?
Short-run budget projections tend to be highly inaccurate, because of unforeseen changes in economic activity, changes in technical assumptions, and changes in economic and other policies. Typically, the first two types of changes alter projections much more than do changes in policies. Surprisingly, longer-run projections may be more accurate than shorter-run projections. • Over the period 1983-2005, the average absolute error in the five-year revenue projection of the Congressional Budget Office (CBO) caused by changes in the economic and technical assumptions was 1.6 percent of GDP, which would be $219 billion at the 2007 level of GDP. Between the earliest official projection of the 2007 budget balance (in the ten-year projection of 1997) and the actual outcome, the projected balance varied over a range of $844 billion because of changes in economic and technical assumptions. • If the CBO projection is too pessimistic in one period, it is extremely probable that it will be too pessi
