Journal Article

State tax revenue growth and volatility


Abstract: Macroeconomic conditions and tax structures jointly determine the growth and volatility of state tax revenues. Since a variety of economic conditions exist among states, government policymakers should carefully anticipate and consider the possible impacts of proposed tax reform and revenue enhancements on the long-term growth and volatility of their unique tax revenue portfolios. In the short run, states generally cannot alter the volatility and growth rates of their economies. They can, however, change the composition of their tax portfolios to minimize the effects of the business cycle on their fiscal health. For this reason, state officials need to consider the natural tendencies of their economies when formulating tax policy. For example, states with volatile economies might want tax portfolios that minimize the impact of national macroeconomic trends; those with stable economies might consider adopting more aggressive tax portfolios that optimize their tax revenue growth/volatility combinations.

Keywords: State finance; Taxation; Revenue;

Status: Published in Proceedings of a conference co-hosted by the Federal Reserve Bank of St. Louis and the Weidenbaum Center at Washington University in St. Louis on the current status of state and local public finance, fiscal federalism in the United States, an economic evaluation of state and local taxes, and non-traditional revenue sources for state and local governments, April 9, 2010.

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Provider: Federal Reserve Bank of St. Louis

Part of Series: Regional Economic Development

Publication Date: 2010

Issue: Oct

Pages: 23-58