Forecasting the New England States’ Tax Revenues in the Time of the COVID-19 Pandemic

Abstract: State governments across the United States face the prospect of sharply declining tax revenues due to the COVID-19 pandemic. They need reliable and up-to-date revenue forecasts to make financially sound policy decisions during this public health and economic crisis. This paper proposes an objective, transparent, simple, and efficient method to forecast state tax revenues in this time of the COVID-19 pandemic. The model is based on only two input factors: the state unemployment rate and an empirically determined time trend. The predictions from the model closely track the actual values of tax revenues for the New England states over the past 25 years. Using this method, this paper forecasts state tax revenues for fiscal year 2021 and suggests large decreases in the New England states. The paper discusses policy options to address the expected declines in revenues and highlights the urgent need for more federal grants without tight strings attached.

Keywords: COVID-19; revenue forecasting; state tax revenue; NEPPC;

JEL Classification: C22; C53; H71;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Current Policy Perspectives

Publication Date: 2020-07-09