Modeling the Louisiana local government fiscal module in a disequilibrium environment: A modified COMPAS model approach

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The objective of this study is to assess and measure the relative forecasting performance of local government expenditures in Community Policy Analysis Models (COMPAS) during periods of supply/demand disequilibrium. We evaluate whether a fiscal module under the COMPAS framework (an equilibrium model) fits better under a disequilibrium economic en-vironment. We find that both a simple naïve model with one year lagged expenditure and a lagged expenditure model with revenue capacity variables significantly increased forecasting performance relative to the traditional supply/demand equilibrium model of the public sector. We also found weak evidence suggesting that in cases where the equilibrium model is used in a crosssectional setting, quantile regression may improve forecasting performance given the heterogeneity in the quantity and quality of preferences in public services. © 2013 MCRSA. All rights reserved.

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Journal of Regional Analysis and Policy

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