The Reliability of Long-Run Budget Projections
This analysis examines long-term projections of U.S. federal budget totals. The predictions are largely driven by a growing elderly population. Spending on Social Security, Medicare, and Medicaid grows more rapidly than tax revenues and ultimately causes an explosion in the debt-to-GDP ratio. Two surprises have moderated this growth. One is unusually low interest rates and the other was the surge in revenues related to the dot-com boom of the late 1990s. One surprise—the Great Recession—caused the debt-to-GDP ratio to rise briefly much faster than expected. Despite these surprises the rapid growth of programs serving the elderly has been forecasted fairly accurately. The analysis ends by discussing program designs that adjust to surprises by changing indexing or using trigger mechanisms.
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