Political Distortions in State Forecasts

27 Pages Posted: 2 Nov 2006

See all articles by Richard T. Boylan

Richard T. Boylan

Rice University - Department of Economics

Date Written: October 30, 2006

Abstract

This study provides evidence that state budget officials give biased forecasts. Specifically, in gubernatorial election years, state budget officers overestimate the growth in state personal income, U.S. personal income, and state revenues by 1.3%, 1%, and 2%, respectively. These biases are even larger if the incumbent party is more likely to lose the gubernatorial election. Accordingly, in election years, budget deficits increase by $25 per capita. These observations are consistent with the incumbent party increasing transfers (tax cuts or benefits increases) during an election year to gain support from constituents. These additional transfers reduce future spending, but future spending is discounted by the probability that the incumbent party loses the gubernatorial election.

Keywords: state budgets, forecasts

JEL Classification: E62

Suggested Citation

Boylan, Richard T., Political Distortions in State Forecasts (October 30, 2006). Available at SSRN: https://ssrn.com/abstract=941227 or http://dx.doi.org/10.2139/ssrn.941227

Richard T. Boylan (Contact Author)

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

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