Download Introduction to PI+ - Economic Forecasting

Predicting State and Local
Government Demand in Local
Regions Based on Changes in
Economic and Demographic
Conditions
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Sherri Lawrence
Frederick Treyz, Ph.D.
George Treyz, Ph.D.
Nicolas Mata
State and Local Government Demand
•Responds to Gross State Products as well as
Population
•Need: Based on Population
•Resource: Based on Revenue (limited to GDP)
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State and Local Government Demand
Equations and Estimates
The new state government demand equation has the following form:
k
SGtk  RSG
*[(GDPt k / N tk ) /(GDPt u / N tu )] * ( SGtu / N tu ) * N tk
Where,
k = state
t = time
u = U.S.
β = GDP elasticity of state government expenditures
SG = State government expenditures in chained 2000$
RSG = local calibration factor for state government expenditures
GDP = gross domestic product in chained 2000$
N = population
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The new local government demand equation has the following form:
k
LGtk  RLG
*[(GDPt k / N tk ) /(GDPt u / N tu )] * ( LGtu / N tu ) * N tk
Where,
k = state
t = time
u = U.S.
γ = GDP elasticity of local government expenditures
LG = Local government expenditures in chained 2000$
RLG = local calibration factor for local government expenditures
GDP = gross domestic product in chained 2000$
N = population
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Regression Equation Results
equation
SG
beta
0.904
gamma
LG
0.798
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standard
error of beta
0.089
standard
error of
gamma
0.078
t
N
10.210
t
10.224
R-square
510
N
0.959
R-square
510
0.980
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Scaling Calibration Factors from State to
County Level
l
SG
 R *[( E
l
LG
 R *[( E
R
R
k
SG
k
LG
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l
SG,T
l
LG ,T
l
T
k
SG,T
l
T
k
LG ,T
/ N ) /( E
/ N ) /( E
k
T
/ N )]
k
T
/ N )]
State Government Equation
SGtl  [(GDPt l / N tl ) /(GDPt u / N tu ) /(GDPTl / NTl ) /(GDPTu / NTu )]
*[( SGtu / N tu ) /( SGTu / NTu )] * ( N tl / NTl ) * SGTl
Local Government Equation
LGtl  [(GDPt l / N tl ) /(GDPt u / N tu ) /(GDPTl / N Tl ) /(GDPTu / N Tu )]
* [( LGtu / N tu ) /( LGTu / N Tu )] * ( N tl / N Tl ) * LGTl
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Previous Demand Equations: State
SG   *[( SG / N ) /( SG / N )] * N
l
t
l
SG
u
t
u
t
u
T
u
T
l
t
Where,
l = local region
t = time
u = U.S.
SG = State government demand in chained 2000$
N = population
λSG = An estimate of the state government average demand per capita in the
last history year
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Previous Demand Equations: Local
LG   *[( LG / N ) /( LG / N )] * N
l
t
l
LG
u
t
u
t
u
T
u
T
l
t
Where,
LG = Local government demand in chained 2000$
λLG = An estimate of the local government average demand per capita in the
last history year
Table 6 shows the percent change in the control forecast of a region in
Georgia based on a model with the new equations for state and local
government demand compared to a model with the old equations. For this
region in Georgia, the GDP per capita has a growth rate of only about 60%
of that in the nation by 2050, which in the new equation leads to the decline
seen in the forecast of the state and local government employment when
compared to the old equation.
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Change in Baseline Forecast as a Result of
New Equations
Variable
2006
2010
2020
2030
Total Emp (Thous)
-0.14% -0.58% -1.21% -1.42%
Total GRP (Bil Fixed 2000$) -0.11% -0.41% -0.80% -0.90%
2040
-1.68%
-1.05%
2050
-2.06%
-1.25%
Personal Income (Bil Nom $)
PCE-Price Index (Fixed
2000$)
Real Disp Pers Inc (Bil Fixed
2000$)
Real Disp Pers Inc per Cap
(Thous Fixed 2000$)
Demand (Bil Fixed 2000$)
Output (Bil Fixed 2000$)
Population (Thous)
Labor Force
State Gov Emp (Thous)
Local Gov Emp (Thous)
-0.10% -0.44% -0.93% -1.05%
-1.20%
-1.46%
-0.01% -0.04% -0.08% -0.06%
-0.06%
-0.08%
-0.09% -0.39% -0.84% -0.97%
-1.13%
-1.36%
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-0.07%
-0.10%
-0.06%
-0.02%
-0.03%
-0.95%
-0.84%
-0.20%
-0.40%
-0.25%
-0.18%
-0.29%
-3.71%
-3.31%
-0.16%
-0.80%
-0.47%
-0.68%
-0.90%
-7.48%
-6.71%
0.01% 0.04% 0.06%
-0.92% -1.06% -1.27%
-0.53% -0.62% -0.75%
-0.98% -1.17% -1.42%
-1.21% -1.45% -1.75%
-8.69% -10.04% -11.95%
-7.81% -9.04% -10.78%
Results of 1,000 Jobs Added to Professional
and Technical Services Based on New
Equations
Variable
Total Emp (Thous)
Total GRP (Bil Fixed 2000$)
2006
2010
2020
2030
0.08% 0.07% 0.06% 0.06%
0.07% 0.06% 0.06% 0.05%
2040
0.06%
0.05%
2050
0.06%
0.05%
Personal Income (Bil Nom $)
PCE-Price Index (Fixed
2000$)
Real Disp Pers Inc (Bil Fixed
2000$)
Real Disp Pers Inc per Cap
(Thous Fixed 2000$)
Demand (Bil Fixed 2000$)
Output (Bil Fixed 2000$)
Population (Thous)
Labor Force
State Gov Emp (Thous)
Local Gov Emp (Thous)
0.06% 0.07% 0.06% 0.06%
0.06%
0.06%
0.00% 0.01% 0.00% 0.00%
0.00%
0.00%
0.06% 0.06% 0.06% 0.05%
0.05%
0.06%
0.05%
0.05%
0.06%
0.01%
0.02%
0.06%
0.06%
0.01%
0.05%
0.05%
0.05%
0.05%
0.05%
0.05%
0.01%
0.05%
0.05%
0.05%
0.05%
0.05%
0.05%
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0.03%
0.05%
0.06%
0.03%
0.05%
0.06%
0.06%
0.01%
0.05%
0.05%
0.05%
0.05%
0.05%
0.05%
0.01%
0.05%
0.05%
0.05%
0.06%
0.05%
0.05%