IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v30y2025i1d10.1007_s11142-024-09840-w.html
   My bibliography  Save this article

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

Author

Listed:
  • Anthony Welsch

    (The University of Chicago)

  • Braden Williams

    (The University of Texas at Austin)

  • Lillian Mills

    (The University of Texas at Austin)

Abstract

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.

Suggested Citation

  • Anthony Welsch & Braden Williams & Lillian Mills, 2025. "Do accounting earnings provide useful information for state tax revenue forecasts?," Review of Accounting Studies, Springer, vol. 30(1), pages 813-859, March.
  • Handle: RePEc:spr:reaccs:v:30:y:2025:i:1:d:10.1007_s11142-024-09840-w
    DOI: 10.1007/s11142-024-09840-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11142-024-09840-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s11142-024-09840-w?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:reaccs:v:30:y:2025:i:1:d:10.1007_s11142-024-09840-w. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.