Interpreting Long-term Simulations

• Long-term simulations provide illustrations—not precise forecasts—of the relative fiscal and economic outcomes associated with alternative policy paths.

• Long-term simulations are useful for comparing the potential outcomes of alternative policies within a common economic framework over the long term.

  • Recognizing the inherent uncertainties of long-term simulations, we have generally chosen conservative assumptions, such as holding interest rates and total factor productivity growth constant. Variations in these assumptions generally would not affect the relative outcomes of alternative policies.
  • The model simulates the interrelationships between the budget and the economy over the long term and does not reflect their interaction during short-term business cycles.

• Long-term simulations are not predictions of what will happen in the future. In reality, policymakers likely would take action before the occurrence of the negative out-year fiscal and economic consequences reflected in some simulated fiscal policy paths.