Do accounting earnings provide useful information for state tax revenue forecasts?

• 成果类型: Article
• 署名作者: Welsch, Anthony; Williams, Braden; Mills, Lillian
• 署名单位: University of Chicago; University of Texas System; University of Texas Austin
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-024-09840-w
• 发表日期: 2025
• 页码: 813-859
• 关键词: aggregate earnings; fiscal-policy; industry-wide; Cash flows; institutions; location

摘要

State tax revenue forecasting is critical to states' fiscal planning because many states have constitutions or laws that require a balanced budget and restrict borrowing to fund deficits. We develop and compare four measures of aggregate corporate earnings growth. We find that a state-specific industry-weighted measure of earnings growth predicts future state tax revenue growth, incremental to states' actual forecasts (i.e., it increases explanatory power by a factor of 1.86). Earnings growth also improves states' component forecasts of personal income, sales, and corporate income tax revenues. We also find that both forecast errors and lagged earnings growth can explain midyear spending cuts, suggesting that there are real consequences to omitting earnings growth from tax revenue forecasts. Because accurate revenue forecasts are necessary for the efficient allocation of government resources, these findings should be useful to those who prepare, monitor, or are otherwise affected by state tax revenue forecasts and budgets.