Article ID: | iaor20072676 |
Country: | United States |
Volume: | 18 |
Issue: | 1 |
Start Page Number: | 100 |
End Page Number: | 126 |
Publication Date: | Jan 2005 |
Journal: | Journal of Public Budgeting, Accounting and Financial Management |
Authors: | Stinson Thomas F. |
Keywords: | management, government, time series & forecasting methods, forecasting: applications |
State and federal revenues fell well short of projections in 2002. While revenues normally turn down in a recession, those revenue shortfalls were much greater than would have been expected given how mild the 2001 recession turned out to be. This paper examines some of the reasons for the large forecast variances observed in recent years using specific examples from forecasts made for the state of Minnesota. Key factors include inaccurate forecast for U.S. economic growth; inadequate, untimely and inaccurate data; imperfect models; and unrecognized changes in the structure of the economy. These factors came together and reinforced each other, ultimately producing a larger reduction in state revenues than could have been anticipated in advance.