Small Local Government Revenue Forecasting

Abstract

Small local governments can use forecasts to strategically plan for the future. One concern, however, is their proclivity to use judgmental rather than extrapolation or econometric forecasts. As discussed in this chapter, the literature attributes the use of judgmental forecasts in small local governments to multiple factors. Limited resources may constrain the ability of small local governments to hire dedicated forecasters or even acquire forecasting software. Elected officials may also cite political concerns as a reason to use judgmental rather than a more rigorous forecasting method. Given these characteristics, small local governments may face higher forecast error than larger local governments, and may be less likely to use long-term forecasts for strategic planning. Future research needs to empirically examine forecast error by the size of government over time. It also needs to triangulate findings with surveys and interviews of public administrators and elected officials involved in the budget process. This can provide insight into the institutional and behavioral reasons why small local governments select particular forecasting methods and practices.