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Testing the Rationality of State Revenue Forecasts

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Author Info
Daniel R. Feenberg
William Gentry
David Gilroy
Harvey S. Rosen

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Abstract

In recent months, the governors of several states have suffered major political embarrassments because actual revenues fell, substantially short of the predictions in their respective budgets. Such episodes focus attention on the question of whether states do a "good" job of forecasting revenues. In modern economics, forecasts are evaluated on the basis of whether or not they are "rational" -- do the forecasts optimally incorporate all information that is available at the tune they are made? This paper develops a method for testing the rationality of state revenue forecasts, and applies it to the analysis of data from New Jersey, Massachusetts, arid Maryland. One of our main findings is that in all three states, the forecasts of own revenues are systematically biased downward.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2628.

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Date of creation: Nov 1989
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Handle: RePEc:nbr:nberwo:2628

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March. [Downloadable!] (restricted)
  3. B. Douglas Bernheim, 1987. "The Timing of Retirement: A Comparison of Expectations and Realizations," NBER Working Papers 2291, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Brown, Bryan W & Maital, Shlomo, 1981. "What Do Economists Know? An Empirical Study of Experts' Expectations," Econometrica, Econometric Society, vol. 49(2), pages 491-504, March. [Downloadable!] (restricted)
  5. Leonard, Jonathan S, 1982. "Wage Expectations in the Labor Market: Survey Evidence on Rationality," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 157-61, February. [Downloadable!] (restricted)
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  6. N. Gregory Mankiw & Matthew D. Shapiro, 1986. "News or Noise? An Analysis of GNP Revisions," NBER Working Papers 1939, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Zarnowitz, Victor, 1985. "Rational Expectations and Macroeconomic Forecasts," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 293-311, October.
  8. John H. Kareken, 1983. "Deposit insurance reform or deregulation is the cart, not the horse," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr. [Downloadable!]
  9. Robert B. Litterman & Thomas M. Supel, 1983. "Using vector autoregressions to measure the uncertainty in Minnesota's revenue forecasts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thiess Buettner & Björn Kauder, 2009. "Revenue Forecasting Practices: Differences across Countries and Consequences for Forecasting Performance," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Bryan Campbell & Eric Ghysels, 1995. "An Empirical Analysis of the Canadian Budget Process," CIRANO Working Papers 95s-08, CIRANO. [Downloadable!]
    Other versions:
  3. Douglas Holtz-Eakin & Harvey S. Rosen, 1991. "Municipal Labor Demand in the Presence of Uncertainty: An Econometric Approach," NBER Working Papers 3516, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Teresa Leal & Javier J. Pérez & Mika Tujula & Jean-Pierre Vidal, 2007. "Fiscal forecasting - lessons from the literature and challenges," Working Paper Series 843, European Central Bank. [Downloadable!]
    Other versions:
  5. Ignacio Lago-Peñas & Santiago Lago-Peñas, 2004. "Explaining budgetary indiscipline: evidence from spanish municipalities," ERSA conference papers ersa04p613, European Regional Science Association. [Downloadable!]
    Other versions:
  6. W. Robert Reed & Cynthia L. Rogers, 2005. "Tax Burden and the Mismeasurement of State Tax Policy," Public Economics 0505001, EconWPA. [Downloadable!]
  7. Naci Mocan, 2007. "Can consumers detect lemons? An empirical analysis of information asymmetry in the market for child care," Journal of Population Economics, Springer, vol. 20(4), pages 743-780, October. [Downloadable!] (restricted)
  8. James M. Poterba, 1995. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Daniel R. Feenberg & Harvey S. Rosen, 1988. "A Note on Revenue Forecasting During the Dukakis Administration," NBER Working Papers 2667, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Gary Wagner & Russell Sobel, 2006. "State budget stabilization fund adoption: Preparing for the next recession or circumventing fiscal constraints?," Public Choice, Springer, vol. 126(1), pages 177-199, January. [Downloadable!] (restricted)
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