Are Errors in Official U.S. Budget Receipts Forecasts Just Noise?
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Authors
McNab, Robert M.
Rider, Mark
Wall, Kent D.
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Date of Issue
2007-04
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Abstract
Existing evidence suggests that U.S. Government budget receipts forecasts are unbiased
and efficient. Our study is an attempt to examine the veracity of these findings. The time
series framework employed in this study is distinguished from previous work in three ways.
First, we build a model that explicitly admits serial correlation in the residuals by allowing
for autoregressive, moving-average, serial correlation. Second, we employ the nonparametric
Monte-Carlo bootstrap to free ourselves from reliance on asymptotic distribution theory which
is suspect given the short data series available for this study. Third, we control for errors in
the macroeconomic and financial assumptions used to produce the U.S. Government’s budget
forecasts. We find that the U.S. Government’s annual, one-year ahead, budget receipts forecasts
for fiscal years 1963 through 2003 are biased and inefficient. In addition, we find that these
forecasts exhibit serial correlation in their errors and thus do not efficiently exploit all available
information. Finally, we find evidence that is consistent with strategic bias that may reflect the
political goals of the Administration in power.
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Working Paper
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Working Paper 07-22
Distribution Statement
Approved for public release; distribution is unlimited.