The Uncertainty of Budget Projections: A Discussion of Data and Methods

On January 26, 2006, the Congressional Budget Office (CBO) released The Budget and Economic Outlook: Fiscal Years 2007 to 2016, which presents CBO's latest projections of federal revenues and outlays for that period. Chapter 1 of that report includes a brief discussion of the uncertainty, in CBO's baseline projection of the total budget balance and shows a figure (reproduced here as Figure 1) illustrating how that uncertainty increases as the projections extend into the future. This supplementary report describes the data and methods used to construct that figure. Throughout this document, the word "deviation" indicates the difference between CBO's projections and actual outcomes, unless specified otherwise. For example, the deviation from a projected budget balance means the difference between the actual budget outcome and the projected value. In brief, CBO calculated measures of uncertainty using the deviations from its past projections that arose from economic and technical factors. Uncertainty arising from legislation was not considered because baseline projections assume that current tax and spending policies remain in place.
The original document contains color images.