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Uncertainties in Projecting Budget Surpluses: A Discussion of Data and Methods [i] (February 2001)

handle is hein.congrec/cbo0780 and id is 1 raw text is: Uncertainties in Projecting Budget Surpluses: A Discussion of Data and Methods February 2001 On January 31, 2001, the Congressional Budget Office (CBO) released The Budget and Economic Outlook. Fiscal Years 2002-2011, which presents CBO's latest projections of federal revenues and outlays for that period. Chapter 5 of that report discusses the uncertainties in CBO's baseline projection of the total budget surplus and includes a chart (reproduced here as Figure 1) illustrating how those uncertainties increase over six years. This supplement to that report discusses the data and methods used to construct the chart. Figure 1. Uncertainty in CBO's Projections of the Total Budget Surplus Under Current Policies (By fiscal year) Billions of Dollars 1,200 - 1,000 - 800- 600 - 400 - 200 - 0 -200 400 1 1990 1992 1994 1996 1998 2000 2002 2004 2006 SOURCE: Congressional Budget Office. NOTES: The figure shows the estimated likelihood ofaltemative projections or the surplus under current policies. The calculations are based on CBO's past track record. CBO's baseline projection falls in the middle of the darkest area. Assuming that policies do not change, the probability is 10 percent that actual surpluses will fall in the darkest area and 90 percent that they will fall within the whole shaded area. Actual surpluses will of course be affected by legislation enacted during the next 10 years, including decisions about discretionary spending. The effects of future legislation are not included in this figure. Figurc 1 presents CBO's baseline projection of the budget surplus as a fan of probabilities around the mean projection for fiscal years 2001 through 2006. The fan widens as the projection extends. The baseline projection falls in the middle of the highest probabilities--the darkest part of the figure. But the figure makes clear that nearby projections--other paths in the darkest part of the figure--have nearly the same probability as the baseline. Moreover, projections that are quite different from the baseline have a significant probability of being realized.-) The uncertainties shown in Figure_1 are based on CBO's historical record of budget projections. That is, the estimates of uncertainty presume that in the future, CBO will make errors similar to those it made in the past, with about the same probability distribution of large and small errors.

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