Over-optimism in Forecasts by Official Budget Agencies and Its Implications


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Science discovers the obvious: Government agencies are routinely over-optimistic in their budget forecasts. From the abstract:

The paper studies forecasts of real growth rates and budget balances made by official government agencies among 33 countries. In general, the forecasts are found:

  • to have a positive average bias
  • to be more biased in booms
  • to be even more biased at the 3-year horizon than at shorter horizons.

This over-optimism in official forecasts can help explain excessive budget deficits, especially the failure to run surpluses during periods of high output: if a boom is forecasted to last indefinitely, retrenchment is treated as unnecessary. Many believe that better fiscal policy can be obtained by means of rules such as ceilings for the deficit or, better yet, the structural deficit. But we also find [that] countries subject to a budget rule, in the form of euroland’s Stability and Growth Path, make official forecasts of growth and budget deficits that are even more biased and more correlated with booms than do other countries. [emphasis mine]

In related news, it is now more than 800 days since the Democratically-controlled Senate has passed or even proposed a budget, as they are required to do by law.

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One comment

  • In my honest opinion IF America is going to be visiting an asteroid it’s going to be conducted by the private sector and not NASA (or a combo of NASA and the private sector) due to the deficit.

    However I think the private sector (led by SpaceX and Bigelow Aerospace) will establish outposts upon the Moon before 2040 (I’d say before 2020 but if we enter a recession it could take longer).

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