Do State Revenue Forecasters Utilize Available Information?

This paper tests whether state revenue forecasts incorporate all possible economic and political information. We formally define the concept of rationality and then test it on time series data on New Jersey's major revenue sources. The results show that for most revenue sources, forecasts have a downward bias and do not fully utilize the information available to the forecaster. Some evidence shows that the size of this bias is positively related to the uncertainty of the revenue source.