The Effect of Underforecasting on the Accuracy of Revenue Forecasts by State Governments

Rodgers, Robert; Joyce, Philip

doi:10.2307/3110053

Cited by 77 publications

(57 citation statements)

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“…See, for example,Bretschneider et al (1989),Rodgers and Joyce (1996) andStrauch, Hallerberg and von Hagen (2004) for supporting studies andCassidy, Kamlet and Nagin (1989) andMocan and Azad (1995) for papers that find no significant evidence.…”

mentioning

confidence: 99%

Fiscal Forecasting: Lessons from the Literature and Challenges*

et al. 2008

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mentioning

confidence: 99%

Fiscal Forecasting: Lessons from the Literature and Challenges*

et al. 2008

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“…Our findings also shed light on an empirical puzzle in the revenue forecasting literature. Earlier studies of revenue underestimation in the states (e.g., Rodgers and Joyce 1996) tend to find a larger average bias than do later studies (e.g., Voorhees 2006). Our findings suggest that as a growing number of states have adopted budget stabilization funds, the incentive to underestimate revenues has dissipated.…”

Section: Resultsmentioning

confidence: 61%

“…As one budget official explained, “I am a hero when there is more money than I predicted and a villain when there is less. Let me tell you, it is much better to be a hero than a villain” (Rodgers and Joyce 1996, 49).…”

Section: Sources Of Error In Revenue Estimationmentioning

confidence: 99%

Budget Slack, Institutions, and Transparency

Rose

Smith

2011

Public Administration Review

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Economic theory suggests that it is optimal for governments to use precautionary saving as a countercyclical tool. However, the availability of surplus funds often triggers political pressure for tax cuts and spending increases. Mechanisms for alleviating that pressure include limiting the transparency of slack resources and limiting politicians' discretion to use slack resources for purposes other than stabilization. Th is article investigates the extent to which these two mechanisms are substitutes. In particular, the authors examine whether the widespread adoption of budget stabilization funds (BSFs) in the U.S. states over the past several decades has been accompanied by a decline in conservative revenue forecast bias. Using panel data from 47 states over a 22-year period, they fi nd that the adoption of a BSF reduces revenue underestimation by approximately two-thirds; however, the size of the eff ect depends in part on how much a state saves in the BSF and the rules governing BSF deposits and withdrawals. Th e results suggest that BSFs have the unintended eff ect of increasing fi scal transparency.

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“…Accordingly, the source of financing routinely defaults to borrowing and increasing the deficit 7. State and city governments have also been found to deliberately under-forecast revenues to provide a cushion against downside errors or to create opaque re-budgeting opportunities for the executive (Caiden 1981;Rodgers and Joyce 1996;Williams and Onochie 2013). They also have used budget accounting gimmicks to report balanced annual budgets while effectively increasing outstanding debt (Bifulco et al 2012) Evasive accounting practices provide one explanation for insolvency of some political subdivisions that were ostensibly adhering to an annual balanced budget rule.…”

Section: Planning and Budgeting Under Uncertaintymentioning

confidence: 99%

Budgeting for Fiscal Uncertainty and Bias: A Federal Process Proposal

Bhatti¹,

Phaup²

2015

Public Budgeting & Finance

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Balanced budget constraints have forced sub‐national governments to anticipate and mitigate the adverse effects of fiscal shocks on budget balance, services, and tax rates. By contrast, the federal government responds to negative budget surprises with increased borrowing. That response is consistent with short‐term economic stabilization, national security, and assisting those suffering loss. Nonetheless, an automatic default‐to‐debt response requires a routine means of restoring debt to planned levels. Otherwise, increases in public debt imply unplanned increases in future tax rates, reduced fiscal flexibility, lower income, and allocative inefficiency. We propose a procedural offset to debt drift from shocks and planning bias.

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The Effect of Underforecasting on the Accuracy of Revenue Forecasts by State Governments

Cited by 77 publications

References 0 publications

Fiscal Forecasting: Lessons from the Literature and Challenges*

Fiscal Forecasting: Lessons from the Literature and Challenges*

Budget Slack, Institutions, and Transparency

Budgeting for Fiscal Uncertainty and Bias: A Federal Process Proposal

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