The actual budget balance takes into account the effects of the business cycle on the budget deficit. During recessionary gaps, it incorporates the effect of lower tax revenues and higher transfers on the budget balance; during inflationary gaps, it incorporates the effect of higher tax revenues and reduced transfers. In contrast, the cyclically adjusted budget balance factors out the effects of the business cycle and assumes that real GDP is at potential output. Since, in the long run, real GDP tends to potential output, the cyclically adjusted budget balance is a better measure of the long-run sustainability of government policies.