The expected federal budget surplus: how much confidence should the public and policymakers place in the projections?
When the government runs a deficit, it can borrow from the public—that is, it can create debt. Conversely, when the government runs a surplus, it can retire that debt. For the past three years, the federal government has recorded budget surpluses, and both the White House Office of Management and Budget and the Congressional Budget Office project that these surpluses will increase for at least the next decade. If these projections prove to be accurate, the $3.5 trillion of publicly held federal debt could be eliminated by around 2010. This article, which was written prior to the updated estimates published in January 2001, assesses the likelihood that these projected surpluses will materialize, and consequently eliminate the public debt, by comparing previous budget projections with actual outcomes. The authors show that the long-term budget projections have not provided a useful indicator of actual experience. Principally, these errors occur because of changes in macroeconomic conditions or unforeseen legislative actions, which both result in unanticipated increases or decreases in revenues or outlays. Not surprisingly, the projections have proven to be less reliable the longer the projection horizon. Moreover, over the period of available data, the projections have been biased upward, i.e., the actual deficits have been larger than projected. Accordingly, the authors suggest that prospects for eliminating the public debt may be overstated.
Volume (Year): (2001)
Issue (Month): Mar ()
|Contact details of provider:|| Postal: |
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.stls.frb.org/research/order/pubform.html Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Reifschneider & Robert Tetlow & John Williams, 1999. "Aggregate disturbances, monetary policy, and the macroeconomy: the FRB/US perspective," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-19.
- Kasten, Richard A. & Weiner, David & Woodward, G. Thomas, 1999. "What Made Receipts Boom and When Will They Go Bust?," National Tax Journal, National Tax Association, vol. 52(n. 3), pages 339-48, September.
- Robert H. Rasche, 1985. "Deficit projections vs. deficit forecasts," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul5.
- Jagadeesh Gokhale, 2000. "Generational Accounts for the United States: An Update," American Economic Review, American Economic Association, vol. 90(2), pages 293-296, May.
- Alan J. Auerbach, 2000. "Formation of fiscal policy: the experience of the past twenty-five years," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 9-23.
- David Altig, 2000. "Fiscal policy and fickle fortunes: what’s luck got to do with it?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:2001:i:mar:p:11-24:n:v.83no.2. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.