An empirical examination of bias in revenue forecasts by state governments

This analysis examines the influence of economic forecast errors and political and institutional factors on the general fund revenue forecast errors of 23 states for the period 1978 to 1987. During this period states in the sample underestimated their revenue by only 0.5%. This modest tendency toward conservative forecasting is further reduced after controlling for economic uncertainty. Moreover, the analysis reveals no systematic relationship between revenue forecast errors and state political and institutional factors. Thus, the results cast substantial doubt on the prevailing belief as found in the literature, that state revenue forecasts have a pronounced conservative bias.