NorthHolland
Wilpen L. GORR
CarnegieMellon University, Pittsburgh, PA 15213, USA
Abstract: This paper tests a general theory of the factors influencing the accuracy of state government
revenue forecasts. Besides the more familiar hypotheses on forecasting techniques and randomness of
dependent variable time series, our theory includes hypotheses on the political environment and organiza
tional procedures used in forecasting. The primary data are from three surveys of state governments and
include percentage forecasts errors for total and sales tax revenues. The analysis uses two measures of
forecast accuracy, the mean and median absolute percentage errors. These are estimated in a linear model
that uses ordinary least squares and least absolute value regressions. The results confirm most parts of the
theoretical model, subject to the caveats of field data. Forecast accuracy increases when there are
independent forecasts from competing agencies. It increases even more when formal procedures exist to
combine competing forecasts. It decreases when outside expert advisors are used and when there is a
dominant political party or ideology. Finally, it increases when simple regression models and judgmental
methods are used as opposed to univariate time series methods or econometric models.
Exhibit 2
State and local government revenue sources in millions of dollars (1985).
Grizzle, 1986) showing that forecasts are made 2.3. Political and organizational influences
anywhere from two months to over a year prior to
the start of the budget cycle. Sixtyeight percent of The American form of government gives rise to
all states prepare forecasts no more than six political, organizational, and procedural factors
months ahead, 20% prepare forecasts more than that affect revenue forecast accuracy. Perhaps the
six months but less than a year ahead, while the most distinctive of these factors are the balanced
remaining 12%, on biennial fiscal cycles, include budget laws of state and local governments and
forecasts a year or more before the beginning of a the separationofpowers design of American
budget year. governments. Both factors apply pressure for ac
Generally state governments forecast revenues curate revenue forecasts. In contrast, American
for as few as 10 or as many as 100 different business firms are believed to sometimes bias sales
sources individually (including an ‘other’ cate forecasts high in order to set targets and motivate
gory). Results are then aggregated to produce total sales forces (see, e.g., Wildavsky, 1982; Majani,
revenue forecasts. Exhibit 2 shows national totals 1982).
for eight major categories of state and local State and local governments have balanced
government revenues (U.S. Bureau of the Census, budget requirements, unlike the federal govern
197551984). State governments tend to rely heavily ment, so they need accurate revenue forecasts to
on sales taxes and personal income taxes, whereas determine the size of the budget. Shortrun politi
local governments rely more heavily on the prop cal goals may be served by under or overforecast
erty tax. Both of these levels of government have ing; however, deficits or surpluses must be rec
become increasingly dependent upon grants from onciled during the course of the budget cycle by
the federal government. public managers and elected officials.
Each revenue source has different generating Cassidy, Kamlet and Nagin (1989) review
factors that influence the degree to which revenue mechanisms used by state governments to protect
may be forecasted accurately. For example, sales, against revenue shortfalls; for instance, they may
personal income, and corporate income taxes tend spend ‘rainy day’ funds and unencumbered fund
to follow the business cycle, leading to a certain balances. When builtin contingencies are ex
pattern of forecast errors (see Cassidy, Kamlet hausted or inaccessible, revenue shortfalls can be
and Nagin, 1989). In contrast, intergovernmental managed by expenditure cutbacks to a point, after
grants depend on decisions made by a higher level which temporary tax increases may be needed for
of government and are often unpredictable. large deficits. Small revenue surpluses can always
be put to good use, but large revenue surpluses
leave the residents feeling overtaxed. The conse
2.2. Forecasting techniques quences of forecast errors can thus be severe for
both over and underforecasts (see Shkurti and
A wide range of forecasting techniques are used Winefordner, 1989, for a case study of revenue
in state government revenue forecasting. A survey forecast errors and their consequences in the Ohio
by Gambill (1978) found that 45% of responding state government).
states made use of econometric models to do some The separation of powers in state government
or all of their revenue forecasting. Models ranged has traditionally led to rivalry between its execu
in size from 2 to 400 equations and outside con tive and legislative branches. While the executive
sultants either developed or maintained over 60% branch has the responsibility for initiating the
of these models. Bretschneider and Gorr (1987) budgeting process and making revenue forecasts,
performed a content analysis of responses pro legislatures enact budgets. In the process of doing
vided in surveys by Klay and Zingale (1980) and so, legislatures are increasingly producing their
the Public Policy Institute of New York (1985). own independent forecasts. Klay and Zingale
The results indicated that states use a mixture of (1980) found that 82% of the state legislatures
methods, with 88% using simple econometric mod surveyed made or commissioned their own reve
els (multiple regression models), 48% using time nue forecasts. The Public Policy Institute of New
series techniques, 40% using judgment, and 30% York (1985) found that 64% of the states surveyed
using simultaneous equation econometric models. had formal legislative agencies responsible for
310 S. I. Breischneider et al. / Accuracy of forecasting state government revenues
making independent revenue forecasts. The de factor to be influenced by revenue structure and
velopment of rival forecasts can challenge assump economic conditions. As mentioned earlier, some
tions and expose political positions to debate, revenue sources are more difficult to forecast than
thereby improving forecast accuracy. others, so the particular mix of revenue sources in
Executive and legislative forecasts are often a particular state in part determines randomness.
combined to produce the final forecast. Klay and Also, many revenue sources are directly dependent
Zingdale (1980) found that 30% of the states on economic activity levels, so that regional and
surveyed had a formal process for combining ex national business cycles and trends affect the ran
ecutive and legislative forecasts. Klay and Grizzle domness of state revenues.
(1986) found that 64% had tried such a process. One measure of ‘randomness’ (Makridakis and
Generally, the combination of disparate forecasts Hibon, 1979) used in this paper is an estimation
increases forecast accuracy (see, e.g., Newbold and error summary statistic, the MAPE, derived from
Granger, 1974; Makridakis and Winkler, 1983; a simple time series model of the dependent vari
Fullerton, 1989). able. We also include measures for unusual events
Partisan politics may decrease forecast accu {tax rate or base changes) and forecast lead time.
racy if one party or ideology dominates govern Unanticipated events can cause relatively large
ment. Political goals can distort forecasts. For changes in the pattern of a time series, thereby
example, Ellwood (1983), Kamlet and Mowery making the time series difficult to forecast (Gorr,
(1985), and Kamlet, Mowery and Su (1987) have 1986a, 1986b). Also, it is generally believed that,
found evidence that macroeconomic forecasts used in general, the further ahead the forecast, the
by both executive and legislative branches of the larger the forecast error. The hypothesis here is
federal government are based in part on efforts to thus: the following.
further political goals.
Hypothesis 1. State revenue forecast accuracy de
creases as randomness increases.
3. General model of revenue forecast accuracy There is a large body of literature on the effect
forecasting techniques have on forecast accuracy
Exhibit 3 presents a general model, developed (see, e.g., Nelson, 1973; Makridakis and Hibon,
by Bretschneider and Gorr (1987), of factors in 1979; Makridakis et al., 1982; Mahmoud, 1984;
fluencing government revenue forecast accuracy. Fildes, 1985; Armstrong, 1983, 1985). Begun in
the 1970’s with case study comparisons between
Among these factors are forecasting techniques
organizational design and econometric and time series methods, the litera
used, randomness,
ture expanded to include more closely controlled
processes, and political climate. Indirect in
experimental studies including qualitative as well
fluences are revenue structure and economic
as quantitative techniques. One finding was that
climate.
Randomness refers to the inherent difficulty of econometric techniques produce more accurate
forecasts when the independent variables undergo
forecasting a time series. Exhibit 3 shows this
large changes (i.e., for large forecast horizons). But
Revenue structure ~~~~ for shortterm forecasts, which probably corre
spond to small changes in independent variables,
econometric methods have little advantage in ac
1 Political climate curacy over time series methods. Given that state
revenue forecasts have horizons of one to two
i J,
years, this suggests the following hypothesis.
Forecasting Organizational
techniques used design and process Hypothesis 2. Time series techniques are more
accurate than econometric techniques for state
revenue forecasting.
57j Forecast_i accuracy
One data set in this paper has econometric
Exhibit 3. Theoretical model of government revenue forecast
methods categorized as being simple (single equa
accuracy.
S.I. Bretschneider et al. / Accuracy of forecasrlng safe government revenues 311
tion models) or complex (simultaneous equation hold down planned spending. At the same time,
models). Simultaneous equation models have not the Democrats may go in the opposite direction,
improved forecast accuracy (see, e.g., Armstrong, overforecasting, to justify largerplanned expendi
1978). Thus we include the following hypothesis. tures. If there is a political imbalance (i.e., there is
a dominant ideology or political party), revenue
Hypothesis 3. Simple econometric models are as forecasts may be biased and thus inaccurate. This
accurate as, or more accurate than, complex leads to the following hypothesis.
econometric models for state revenue forecasting.
Hypothesis 5. States with a single dominant polit
Finally, with regard to forecast techniques, since ical party or ideology are less likely to have accu
this paper in part reanalyzes data from rate forecasts than those that have more balanced
Bretschneider and Gorr (1987), their hypothesis representation.
on qualitative techniques is retained although the
authors rejected it. The balance of power between branches of
government is maintained with checks and bal
Hypothesis 4. Objective forecast techniques are ances. Executive and legislative roles and processes
more accurate than qualitative techniques for state for revenue forecasting lead to the following hy
revenue forecasting. pothesis.
Much of the literature on objective versus sub Hypothesis 6. States that have an independent
jective forecasts shows objective methods to be legislative agency for generating revenue forecasts
superior, but not unequivocally so. Huss (1985) make more accurate forecasts than those with only
found that electric utility companies’ forecasts of an executive forecast agency.
the use of electric power for the first year ahead of
electricity use were more accurate than the time For those states having both executive and
series and econometric forecasts that he made; legislative agency forecasts, there is the need
thereafter, his forecasts tended to be superior. He ultimately to develop a single forecast around
speculated that the success of utility companies which to build the state budget. This requires
with the firstyear forecasts was due to the fore some attempt at consensusbuilding or cooper
casters’ knowledge of special events, such as major ation between the competing forecasters. The pro
customers’ plans for largescale expansion. Simi cess of combining forecasts leads to the following
larly, it is possible that state revenue forecasters hypothesis.
have knowledge of future special events that they
use to improve forecast accuracy. Hypothesis 7. States that have formal procedures
The political climate may affect state revenue for combining legislative and executive branch
forecast accuracy. The twoparty system in the forecasts have improved forecast accuracy over
United States stereotypically fosters two sets of those that do not.
priorities. In the most simplistic terms, Repub
licans (conservatives) want to decrease spending Many states use councils of economic advisors
and Democrats (liberals) want to increase it. As and external consultants for obtaining general in
Cassidy, Kamlet and Nogin (1989) point out, for formation on the economy as well as forecasts for
certain conditions either party may find it desira key macroeconomic indicators used as indepen
ble to over or to underforecast. In addition, we dent variables in econometric revenue forecast
wish to point out that any such biases are counter models (see, e.g., Shkurti and Winefordner, 1989).
acted by opposing parties. For example, Repub One point of view suggests that the more indepen
licans may overforecast to refute the need for a dent the forecasters are of the organization need
tax increase proposed by Democrats. At the same ing forecasts, the more accurate the forecasts will
time, Democrats may underforecast to justify the be. Reasons for this are the detachment, objectiv
need to raise additional revenues through a tax ity, and sophistication of outside experts. In con
increase. In the absence of any proposal to in trast to this is the empirical finding that experts
crease taxes, Republicans may underforecast to are good at evaluating current and past situations
312 XI. Bretschneider et al. / Accuracy of forecasting state government revenues
Exhibit 5
Descriptive statistics for total revenue forecast accuracy model (n = 74)
APE Dependent variable, absolute percentage error of total revenue forecast 4.58 5.04
COEFVARIATION Coefficient of variation of total revenue 0.18 0.04
QUALITATIVE 0 = no qualitative techniques used, 0.38 0.49
1 = qualitative techniques used
TIMESERIES 0 = no time series techniques used, 0.50 0.50
1 = time series techniques used
ECONSIMPLE 0 = no simple econometric models used, 0.93 0.25
1 = simple econometric models used
ECONCOMPLEX 0 = no complex econometric models used, 0.36 0.48
1 = complex econometric models used
BALANCE Agencies producing revenue forecasts: 0.51 0.50
0 = executive branch only,
1 = executive and legislative branches
CONSENSUS Procedures for combining executive and legislative forecasts: 0.18 0.88
 1 = no consensus process,
0 = informal process,
1= formal process
ECONADVISORS 0 = no council of economic advisors used, 0.27 0.45
1 = council of economic advisors used
IDEOLOGYDOM Scale between 0 and 1 with: 0.03 0.03
0 = balance of conservative and liberal ideologies,
1 = dominance of either conservative or liberal ideology
Exhibit 6
Descriptive statistics for sales tax receipts forecast accuracy model variables (n = 106).
APE Dependent variable, absolute percentage error of sales tax revenue forecast 6.18 7.85
FITMAPE a MAPE of fitting errors from time regression of sales tax receipts 5.82 4.11
TAXCHANGE 0 = no sales tax change, 0.26 0.44
1= sales tax base or rate change in tax year
FORECASTLEAD Time gap between forecast and start of fiscal year forecasted (months) 6.69 3.43
ECON 0 = no econometric model used, 0.90 0.31
1= econometric model used
QUESTASSUMP Propensity of officials to question assumptions about the national economy 3.50 0.67
(scale 1 to 4)
BALANCE Agencies producing sales forecasts: 0.68 0.47
0 = executive branch only,
1 = executive and legislative branches
CONSENSUS 0 = no consensus process, 0.63 0.49
1 = consensus process used to combine executive and legislative agency forecasts
COOPERATIVE 0 = no cooperative processes, 0.64 0.48
1= cooperative processes used to prepare forecasts
OUTADVISORS 0 = no outside advisors consulted, 0.20 0.40
1 = outside advisors consulted to prepare forecast
IDEOLOGYDOM Scale between 0 and 1 with: 0.03 0.04
0 = balance of conservative and liberal ideologies,
1 = dominance of either conservative or liberal ideology
PARTYDOM Ratio of democrats/republicans or republicans/democrats, whichever is > 1, 4.02 6.66
in the senate

a Variable used in this model is FITMAPE/lOO.
314 XI. Bretschneider et al. / Accuracy offorecastingstate gouernment revenues
judgmental methods, 50% used time series meth same variable as in the previous data set. Finally,
ods, 25% used regression models, and 48% used PARTYDOM is an indicator of dominance by a
simultaneous equation models. party of the legislature of a state. It is the ratio of
BALANCE and CONSENSUS are indicator varia the number of Democrats to Republicans or vice
bles for organizational design and procedures of versa depending on which ratio is larger than 1.
forecasting. BALANCE is 0 if only the executive This variable has a large mean ratio of 4.02.
branch makes the revenue forecasts and 1 if both
executive and legislative branches make indepen
dent forecasts. CONSENSUS is 1 if there are formal 5. Analysis and results
procedures for combining executive and legislative
forecasts and is 0 otherwise. ECONADVISORS is 1 if This section presents empirical results obtained
a state uses a council of economic advisors. Fi for the model of state revenue forecast accuracy
nally, IDEOLOGYDOM is a measure of the domi depicted in exhibit 3. The dependent variable is
nance of the political environment by a conserva the absolute percentage error (APE) computed
tive or liberal ideology. Wright and McGuire from a state’s forecasted and observed revenue
(1985) compiled data for this variable from the values in a given year. The independent variables,
results of various political poles run between 1974 used in simple linear model specifications, repre
and 1982. sent the four components of the theory set forth in
Exhibit 6 contains descriptive statistics for the exhibit 3.
variables used to model sales tax forecast errors Ordinary least squares (OLS) regression esti
below. FITMAPE, TAXCHANGE, and FORECASTLEAD mates for the total revenue and sales tax data sets
are all measures of randomness for the data set on yield results on the forecast MAPE conditioned by
sales tax forecasts. FITMAPE is the MAPE of esti values of the independent variables. Least ab
mation residuals from a linear time trend model solute value (LAV) estimates, obtained by means
applied to ten years (197551984) of each state’s of linear programming (Dielman and Pfaffen
sales tax revenues (U.S. Bureau of the Census, berger, 1982) yield comparable results on the
19751984). TAXCHANGE with a value of 1 indi forecast MdAPE. Exhibit 4 showed that the APE
cates a tax base or rate change during a data distributions for both the total revenue and sales
point’s year. Finally, FORECASTLEAD is the number tax data sets are skewed to the right so that the
of months between completion of a forecast and MdAPE is generally smaller than the MAPE. Bas
the start of the fiscal year. Exhibit 1 showed the sett and Koenker (1978) have shown thaat LAV
distribution of this variable. estimates are more efficient than OLS estimates
There is little variation in the techniques used for skewed distributions; therefore, LAVesti
to forecast sales tax revenues. As indicated by mated coefficients will tend to be more significant
ECON, which is 1 if a state uses an econometric than those obtained from OLS.
model to forecast sales taxes, 90% of the sampled Exhibit 7 summarizes total revenue and sales
states used some kind of econometric technique. tax results estimated by OLS and LAV regressions
This is not surprising since sales tax collections in terms of individual coefficient significance tests.
are tied directly to a state’s economy. QUESTAS Exhibit 8 reports OLS and LAV estimates for the
SUMP is an indicator, on a scale of 1 to 4, of how total revenue data set, and exhibit 9 does the same
critical a state was in questioning the applicability for the sales tax data set.
to the state level of assumptions about the na First note in exhibit 7 that all coefficients for
tional economy. BALANCE and CONSENSUS are sim the total revenue data set are significant at the 5
ilar to variables in the total revenue data set. Here, or 1% level except ideological dominance
outsideadvisors, as represented by OUTADVISORS, (IDEOLOGYDOM) for the MAPE estimates and
are not limited to membership on a council of simultaneous equation econometric methods
economic advisors, but can be consultants and (ECONCOMPLEX) for both sets of estimates. All
other kinds of external experts. COOPERATIVE indi significant estimates have the expected signs ex
cates the existence of cooperative efforts such as cept for judgmental forecast methods (QUALITA
interagency working committees through which TIVE) and time series forecast methods (TIME
revenue forecasting is done. IDEOLOGYDOM is the SERIES). Since all independent variables are non
S.I. Breischneider et al. / Accuracy offorecasting state gouemment revenues 315
Exhibit 7
Summary of empirical results. a
Forecast method
QUALITATIVE +
TIMESERIES 
ECON  N Y**
ECONSIMPLE _ Y* y**
ECONCOMPLEX + N N
QUESTASSUMP _ N Y**
Political environment
IDEOLOGYDOM + WI Y** Y** Y**
PARTY DOM + Y* N
a ( ) means: wrong sign, N = not significant, Y = significant at 10% level, Y * = significant at 5% level, and Y * * = significant at 1%
level.
Exhibit 8
Estimates for model on total revenue forecast accuracy (n = 74).
a Onesided pvalues are reported for all coefficients except the intercept.
316 S.I. Bretschneider et al. / Accuracy of forecasting state government revenues
negative, a negative coefficient signifies an im cients are significant. All coefficients have the
provement in forecast accuracy. expected signs except for FORECASTLEAD which is
Thus, the results show a reversal in expected not significant. OUTADVISORS, like ECONOADVISORS
effects of time series and judgmental methods: for the total revenue model, shows decreased fore
states using time series methods have lower fore cast accuracy associated with the use of outside
cast accuracy than those not doing so, and the experts. Overall, exhibit 7 provides support for all
opposite is true for judgmental methods. One components of our theoretical model: random
former state revenue forecaster suggested that time ness, forecast method, organizational design and
series methods are used for revenue sources that procedures, and political environment are factors
cannot be otherwise modeled (i.e., these methods that influence revenue forecast accuracy in pre
are applied to situations difficult to forecast). If dictable ways.
this is the case, then the field data are limited by For the estimated model of total revenue fore
the lack of randomization in the assignment of cast accuracy in exhibit 8, COEFVARIATION and
subjects to treatments (i.e., selfselection) and we IDEOLOGYDOM are continuous variables, CON
do not have results that can test the hypotheses on SENSUS is discrete, and the rest are dichotomous.
forecast techniques. In regard to the improvement The contribution of the significant continuous
in accuracy due to the use of judgmental methods, variable, COEFVARIATION, to the model is de
we suspect that revenue forecasters have special termined by setting this variable to its average
knowledge of their states’ economies for the com value, 0.18, from exhibit 5, and multiplying by its
ing year, as discussed in section 3. Finally, the net estimated coefficient for the MAPE model, 25.73.
effect of using councils of economic advisors This yields 4.6%. The maximum for COEFVARIA
(ECONADVISORS) is a decrease in forecast accuracy. TION is 0.37, so the maximum impact, using a
Also note in exhibit 7 that the MdAPE results similar calculation, is to add 9.5%. (All percentage
on individual coefficient significance are equal to changes stated here are absolute changes in the
or stronger than MAPE results in all cases, as MAPE or MdAPE, and in the same percentage
predicted above. Two variables had increased sig units as these criteria.)
nificance: the use of multiple regression forecast Qualitative techniques reduce the MAPE by
models (ECONSIMPLE) improved from 5 to 1% while 2.1%, time series techniques increase it by 5.0%,
IDEOLOGYDOM went from insignificant to 1% sig simple econometric techniques reduce it by 4.3%,
nificance. and complex econometric techniques increase it
For the sales tax data set, the MdAPE esti by 1.7% (which is nearly significant at the 10%
mates are much more significant than those for level). The BALANCE coefficient, representing state
the MAPE, as seen in exhibit 8. This is predictable governments having two independent and com
from exhibit 3 because the sales tax APE distribu peting forecast agencies, reduces the forecast
tion is more highly skewed than the total revenue MAPE by 4.3%. Moreover, if formal procedures
APE distribution. All coefficients are significant are used to combine independent forecasts, then
at the 5 or 1% level (and predominantly at the 1% the MAPE decreases another 2.4%. Finally, as to
level) and have the expected signs for the MdAPE organizational factors, if a council of economic
estimates with the exception of political party advisors is used, the MAPE increases by 2.6%. The
dominance (PARTYDOM) which is not significant. results for the MdAPE model are similar, but
In contrast, only five out of eleven coefficients are scaled closer to zero since the MdAPE is smaller
significant for the MAPE estimates. Tax rate or than the MAPE. One difference here is that
base changes (TAXCHANGE) of the three random IDEOLOGYDOM is significant (at the 1% level) and
ness variables is significant; neither of the two so plays a role. If we set this variable to its mean
forecasting techniques coefficients is significant. value, its effect in the model is to add 1.3% to the
The use of formal procedures to combine execu forecast MdAPE. The maximum for this variable
tive and legislative forecasts (CONSENSUS) and the is 0.16, so it can add as much as 7.0% for states
existence of outside advisors (OUTADVISORS) coef that have a high degree of ideological dominance.
ficients of the four organizational coefficients are In exhibit 9 for the significant MAPE estimates
significant and the coefficients of both IDEOLOGY of the sales tax model, we see first that a tax base
DOM and PARTYDOM political environment coeffi or rate change increases the forecast MAPE by
XI. Bretschneider et al. / Accuracy of forecasting state government reuenues 317
Exhibit 9
Estimates for model on sales tax receipts forecast accuracy (n = 106).
a Onesided pvalues are reported for all coefficients except the intercept.
3.7%. (An investigation with signed percentage MdAPE by 5.3%. Finally, the mean effect of ideol
error data shows that the forecasts errors during ogy and legislature party dominance is to increase
years with such changes do not have a tendency to the MdAPE by 1.5 and O.l%, respectively. Using
be over or under forecasts.) As to organizational maximum values observed for these variables (0.16
variables, a state must have two independent fore and 38) yields increases of 8.2 and l.l%, respec
cast agencies as well as formal procedures for tively.
combining forecasts to have a significant effect,
which is to lower the MAPE by 2.8%.
The MdAPE results in exhibit 9 are more inter 6. Conclusion
esting than those for the MAPE. First, all ran
domness variables are significant. Setting FITMAPE Some caution needs to be exercised in using the
and FORECASTLEAD to their mean values yields results of this paper due to the limitations of field
increases to the MdAPE of 1.1 and 1.38, respec data. In particular, experimental subjects cannot
tively; setting them to their maximum values (0.16 be assigned to treatments in a crosssectional study
and 14) yields increases of 3.2 and 2.7% respec of state government forecasting, so some results
tively. Both the use of econometric methods and may be due to selfselection biases as opposed to
critical use of national macroeconomic indicators general behavior. For example, councils of eco
decrease the MdAPE by 1.9 and 1 .l%, respec nomic advisors may tend to be used by states with
tively. difficult forecasting problems, and time series
The organizational effects are as predicted. If models may be used when econometric models are
there are two independent forecast agencies, pro not applicable. Both of these means to forecasting
cedures for combining forecasts and cooperative were shown to be positively correlated with a
arrangements such as interagency working com decrease in revenue forecast accuracy. It is not
mittees, then the MdAPE is reduced by 6.9%. possible to say whether this is due to their inferior
Almost all of this can be lost, however, by relying ity as a means of government revenue forecasting
on outside experts; this procedure increases the or whether they reflect selfselection bias.
318 XI. Bretschneider et al. / Accuracy of forecasting state government revenues
Given this caveat, several recommendations can examination of bias in revenue forecasts by state govern
ments”, International Journal of Forecasting, 5, 321331
tentatively be made. First, forecast accuracy can
(this issue).
be increased by having independent executive and
Dielman, T. and R. Pfaffenberger, 1982, “LAV (least absolute
legislative forecast agencies that have cooperative value) estimation in linear regression: A review”, TIMS
working relationships and, furthermore, are bound Studies m Munagement Science 19, 3152.
to formal procedures for the combination of inde Ellwood, J., 1983, “The great expectation: The Congressional
budget process in an age of decentralization”, in: L.C.
pendent forecasts. Second, a mixture of multiple
Dodd and B.J. Oppenheimer, eds., Congress Reconsidered,
regression models and qualitative methods ap
3rd ed. (Congressional Quarterly Press, Washington, D.C.).
pears to be the most accurate technique. Time Fildes, R., 7985, “Quantitative forecasting. the state of the art:
series techniques and simultaneous equation mod Econometric models, Journal of the Operational Research
els decrease accuracy. Finally, it appears that re Society, 36, no. 7, 549580.
sources should be spent on developing govern Fullerton, Jr., T.M., 1989, “A composite approach to forecast
ing state government revenues: Case study for the Idaho
mental expertise in revenue forecasting as opposed
sales tax”, International Journal of Forecasting, 5, 373380
to using outside experts and councils of economic (this issue).
advisors. Gambill, J., 1978, “State use of econometric models in revenue
Our future research plans include field studies estimating: A report on a survey”, in: Proceedings of NATA
Revenue Estimating Procedures Conference (Federal Tax
on revenue forecast accuracy at the local level of
Revenue Estimating Procedures Conference, Washington,
government. Investigations are under way now
D.C.).
with samples of revenue forecast errors made by Gorr, W.L., 1986, “On the use of special event data in govern
municipalities and school districts. There are over ment information systems”, Public Administration Reuiew,
25 000 separate municipalities, counties, and school 46 (Specral Issue on Public Management Information Sys
districts in the U.S., so the potential for collecting tems), 532539.
Gorr, W.L., 1986, “Special event data in shared databases”,
a great deal of data and observing wide ranges of
MIS Quarterb, 10, 239250.
behavior is great. We suspect an additional factor Huss, W.R., 1985, “Comparative analysis of company fore
will need to be added to our general model to casts and advanced time series techniques using annual
accommodate local government forecast behavior; electric utility energy sales data”, Journal of Forecasting, 4,
namely, a government’s level of sophistication in 211239.
Kamlet, M.S. and D.C. Mowery, 1985, “The first decade of the
financial management and forecasting. Also, in
Congressional budget act: Legislative imitation and adapta
local economies such unexpected events as plant tion in budgeting”, Policy Sciences, 18, 313334.
closings can cause large forecast errors and must Kamlet, MS., D.C. Mowery and T. Su, 1987, “Whom do you
be taken into account. trust? An analysis of executive and Congressional economic
forecasts”, Journal of Policy Analysis and Management, 6,
365384.
Klay, W.E. and G.A. Grizzle, 1986, “Revenue forecasting in
the states: New dimensions of budgetary forecasting”, pre
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Bozeman, B., 1987, All Organizations Are Public: Bridging An empirical investigation (with discussion)“, Journal of
Public and Priuate Organizational Theories, (JosseyBass, the Royal Statistical Society, Series A, 142, part 2, 91145.
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Bretschneider, S.I. and W.L. Gorr, 1987. “State and local Some empirical results”, Management Science, 29, 987996.
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(Wiley, New York). Wheelwright, Eds., The Handbook of Forecasting: A
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Nelson, C., 1973, Applied Time Series Analysis for Managerial Wilpen L. GORR is Professor of Public Policy and Manage
Forecastrng (HoldenDay, San Francisco, CA). ment Information Systems at the School of Urban and Public
Newbold, P. and C.W.J. Granger, 1984, “Experience with Affairs of CarnegieMellon University. His research interests
forecasting and the combination of forecasts”, Journal of include policy evaluation research, design and application of
the Royal Statistreal Society, Series A, 142, part 2, 131146. adaptive filters, public sector forecasting, and decision support
Public Policy Institute of New York, 1985, An Analysis of State systems. His publications appear in Management Science, Deci
Revenue Forecasting Systems (The Institute, New York). sion Sciences, Public Admmistration Review, and other journals.
Shkurti, W.J. and D. Winefordner, 1989, “The politics of state
revenue forecasting in Ohio, 198441987: A case study and
research implications”, International Journal of Forecastmg,
5, 361371 (this issue). Gloria GRIZZLE is Professor of Public Administration and
U.S. Bureau of the Census, 19751984, State Government Director of the Ph.D. program in the Department of Public
Finances (The Bureau, Washington, D.C.). Administration at Florida State University. Her research inter
Wildavsky, A., 1982, “Budgeting as a political process”, in: ests include performance measurement, decision strategies,
F.S. Lane, Ed., Current Issues in Public Administration, 2nd budgeting theory, and policy analysis and administration. Her
ed. (St. Martin’s Press, New York). articles have appeared in Pubhc AdminIstration Review, Public
Wright, G.R., R. Erikson and J. McGuire, 1985, “Measuring Budgeting and Finance, State and Local Government Review,
state partisanship and ideology with survey data”, Journal Administration and Society, Pubhc Administration Quarterly.
of Politrcs, 47, 469489. and Evaluation Research.