State Revenue Forecasts and Political Acceptance: The Value of Consensus Forecasting in the Budget Process
36 Pages Posted: 21 Apr 2013 Last revised: 19 Nov 2013
Date Written: April 18, 2013
State revenue forecasts are a subject of seemingly constant critique from politicians, the media, and the academy over the nature of their outcomes as measured by the ability to accurately predict available resources. The opportunity to introduce political biases into the revenue baseline, making the budget envelope more or less constrained, has generated a near universal call for a depoliticization of the process. This also induces some to demand greater certainty and transparency with naïve methods; others request increasingly sophisticated techniques in hopes of obtaining improved accuracy. This paper discusses the approach to revenue forecasting in the broader context of a political budget process, and subsequently it highlights the significance of a forecast that is politically accepted. This advances the literature beyond the measurement of forecast error as the sole outcome, because accuracy is irrelevant if the budget process does not respect the forecast as a political constraint. We provide a case illustration in Indiana by tracking the history of the state consensus forecast from the controversies surrounding its conception through its recent political challenges during the Great Recession.
Keywords: Revenue Forecasting, State Budget Process
JEL Classification: C53, E37
Suggested Citation: Suggested Citation