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Market-Based Solutions to Vital Economic Issues
Research
Apr 19, 2020

Real-time Forecasts of State and Local Government Budgets with an Application to COVID-19

Abstract

Using a sample of the 48 contiguous United States, we consider the problem of forecasting state and local governments’ revenues and expenditures in real time using models that feature mixed-frequency data. We find that single-equation mixed data sampling (MIDAS) regressions that predict low-frequency fiscal outcomes using high-frequency economic data historically outperform both traditional fiscal forecasting models and theoretically motivated multi-equation models. We also consider an application of forecasting fiscal outcomes in the face of the economic uncertainty induced by the 2019–2020 coronavirus pandemic. Overall, we show that MIDAS regressions provide a simple tool for predicting fiscal outcomes in real time.


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