Modeling the Louisiana Local Government Fiscal Module in a Disequilibrium Environment: A Modified COMPAS Model Approach
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Abstract. 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 sec- tor. We also found weak evidence suggesting that
in cases where the equilibrium model is used in a cross-sectional setting, quantile regression may
improve forecasting performance given the heterogeneity in the quantity and quality of preferences
in public services.