Abstract
Forecasting state general fund revenue (GFR) though business cycles means possibly confusing a cycle with an underlying long-run trend. Relative to the actual revenue, the mean squared error of the academic, legislative, governor's, the growth path (GP), and Holt-Winters (HW) forecasts for Idaho GFR was not significantly different than the naïve forecast's; the Combined GP-HW forecast has significantly smaller mean square error. The GP model (ARIMA 1, 2, 1) produced a short-run elasticity of revenue with respect to income of 1.05 (±0.05). The best GFR forecasts combined a HW two-step-ahead level with a GP one-step-ahead trend that provided a forecast of GFR with the smallest root mean square error between FY 1998 and FY 2009. A budget stabilization fund needs to be 34–40 percent of GFR for GFR to sustain growth at the state's long-run expansion rate during a contraction.
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