Consistent Underestimation Bias, the Asymmetrical Loss Function, and Homogeneous Sources of Bias in State Revenue Forecasts

Voorhees, William R., Journal of Public Budgeting, Accounting & Financial Management

ABSTRACT.

One component of revenue forecast error has been attributed to the phenomena of consistent underestimation bias due asymmetrical loss. Because underestimation of revenue forecast results in less loss to forecasters than overestimations, there appears to be a bias for forecasters to underestimate revenue forecasts. This paper confirms this hypothesis. Additionally, with the greater usage of national forecasting organizations that provide economic forecasts on which revenue forecasts are based, a secondary source of forecaster bias may be present in many state level forecasts. This hypothesis is supported by the increase in number of states using such organizations and a …

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Publication information: Article title: Consistent Underestimation Bias, the Asymmetrical Loss Function, and Homogeneous Sources of Bias in State Revenue Forecasts. Contributors: Voorhees, William R. - Author. Journal title: Journal of Public Budgeting, Accounting & Financial Management. Volume: 18. Issue: 1 Publication date: Spring 2006. Page number: 61+. © PrAcademics Press, Florida Atlantic University Spring 2007. Provided by ProQuest LLC. All Rights Reserved.

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