Political distortions in state forecasts

This study provides evidence that political incentives lead state budget officials to make biased forecasts. Specifically, the budget in the year that ends right before an election is based on overly optimistic forecasts. Similarly, the budget that starts right before an election is also based on optimistic forecasts. These biases are even larger if the incumbent party is more likely to lose the gubernatorial election. Accordingly, budget deficits are $27 per capita higher in election years and $26 per capita higher the following year.