Figure 2 - Uncertainty in CBO projection of the US budget deficit: Baseline-400-20002004006008001000120014001990 1992 1994 1996 1998 2000 2002 2004 2006
Ye a rUnified surplus (+) or deficit (-), billions of dollarsSource: Congressional Budget Office, Budget and Economic Outlook: Fiscal Years 2002-2011, January 2001.Figure 3 - Uncertainty in CBO projection of the US budget deficit: Actual-600-400-20002004006008001000120014001990 1992 1994 1996 1998 2000 2002 2004 2006
YearUnified surplus (+) or deficit (-), billions of dollarSources: Congressional Budget Office, Budget and Economic Outlook: Fiscal Years 2002-2011 (January 2001) and Budget and
Economic Outlook: Fiscal Years 2007 to 2016 (January 2006).There is no reason to believe that the US experience in this respect is atypical. Countries around the world
have been surprised by the strength of the descent of budgets into deficit in the 1990s.
The reality, then, is that any fiscal rule, whether based on deficits or spending, must be implemented
through imperfect knowledge of the future. Imperfect foreknowledge is the primary source of error in any
such rule. Thus, in this most important respect, the same key problem afflicts any fiscal rule, and a
deficit-based rule, even though it focuses nominally on “the deficit”, has no inherent superiority.
Put another way, the creation of any fiscal rule, whether based on deficits or spending, involves the
selection of policies that achieve a satisfactory projected future deficit path, under conditions of
uncertainty. Therefore a deficit-based rule would immediately require the choice of an economic forecast
and policies that would reach a deficit below the reference level. Thus, for example, countries under the