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  • Author: Robert Krol
  • Publication Date: 03-2014
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Forecasts of future economic activity underlie any budget revenue projection. However, the forecasters in a government agency may face incentives or pressures that introduce forecast bias. For example, agency forecasters may be rewarded for a rosy growth forecast that allows politicians to avoid politically costly program cuts or tax increases. Similarly they may be penalized for underforecasting economic growth. Where a reward system is asymmetric, it would make sense to observe biased forecasts.
  • Topic: Government
  • Political Geography: California