3 Questions
What are some of the challenges faced by forecasters when working with economic data and tax collection data?
Frequent data revisions, difficult interpretation of tax collection data, and changes in taxpayer behavior in response to tax code changes.
In 2009, during the recent recession, by how much did the median state overestimate the combined revenue from the personal income tax, sales tax, and corporate income tax?
10.2 percent
What factors may influence a state's decision on risk tolerance in revenue estimates?
The position of the economy in the business cycle, the level of reserves held by the state, and the state’s credit rating.
Study Notes
Understanding Regional Trends and Cycles
- Economists have limited knowledge about regional trends and cycles compared to the national economy.
- As a result, predicting changes in regional trends is extremely challenging.
Predicting Regional Trends
- Revenue estimators should collaborate with counterparts in other states and economists with regional perspectives.
- Monitoring key industries that dominate the state's economy, as well as smaller, volatile sectors (e.g., construction, finance, or technology), is crucial.
- Changes in these sectors can provide clues to shifts in the linkage between the state and national economies.
Forecasting Revenue
- Rating agencies expect the state economic forecast to be consistent with forecasts and activity in neighboring states, unless there are good reasons for differences.
- Forecasters can estimate revenues expected from each major tax source at current rates using national and state economic forecasts.
- Incorrect revenue estimates are the most visible errors in budgeting.
Limitations of Forecasting
- Forecasters must base projections on state and national economic forecasts, which are inherently prone to errors.
Test your knowledge about regional economic trends and cycles, and the challenges economists face in predicting changes in regional economies. This quiz covers topics related to regional perspectives and revenue estimation.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
