States’ Revenue Estimating: Cracks in the Crystal Ball

Mar 01, 2011

If policy makers are not certain how much revenue their states will have coming in, it is tougher for them to make thoughtful decisions about where to spend and where to cut. A report from the Pew Center on the States and the Nelson A. Rockefeller Institute of Government finds that when states’ revenue estimates are substantially off—in 2009 alone half the states overestimated revenues by at least 10 percent—the consequences can be significant.

States’ Revenue Estimating: Cracks in the Crystal Ball examines state estimates for three major revenue sources—income taxes, sales taxes and corporate taxes—that comprise 72 percent of states’ total tax revenues. The report shows that the volatility of these revenue streams has been a significant cause of inaccurate forecasting, more so than states’ estimating processes, methods and techniques.

This research covers the period from 1987 to 2009, a 23-year span that takes in three recessions and three stretches of economic growth.

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