Forecasting Local Sales Tax Revenues in the Aftermath of a Hurricane: Application of the Hurricane Resiliency Index

Abstract

This paper focuses on exploring the capability of the recently developed Hurricane Resiliency Index (HRI) to predict future changes in sales tax revenues at the local level. Monthly data for Houston metropolitan statistical area (MSA) is used to forecast sales tax revenue in retail, utility, and construction industry sectors. With variants of the vector autoregressive (VAR) model, we compare the predictive power of using the HRI to the Federal Reserve Bank of Dallas’s Metro Business Cycle Index. The VAR model augmented with the HRI generally provides better forecasts than the model with the Metro Business Cycle Index. The findings indicate that the HRI is a useful and reliable revenue-forecasting tool for local governments and policymakers in the wake of extreme events like hurricanes.