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State tax revenue growth and volatility

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  • Gary C. Cornia
  • Ray D. Nelson

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.

Suggested Citation

  • Gary C. Cornia & Ray D. Nelson, 2010. "State tax revenue growth and volatility," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Oct, pages 23-58.
    • Handle: RePEc:fip:fedlrd:y:2010:i:oct:p:23-58:n:v.6no.1
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    File URL: http://research.stlouisfed.org/publications/red/2010/01/Cornia.pdf
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    References listed on IDEAS

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    1. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409, National Bureau of Economic Research, Inc.
    2. Theodore M. Crone & Alan Clayton-Matthews, 2005. "Consistent Economic Indexes for the 50 States," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 593-603, November.
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    Cited by:

    1. Balaev, Alexey I. (Балаев, Алексей), 2017. "Factor Analysis of the Russian Budget System Revenues [Факторный Анализ Доходов Российской Бюджетной Системы]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 3, pages 8-37, June.
    2. Joshua C. Hall & Antonios M. Koumpias, 2018. "Growth And Variability Of School District Income Tax Revenues: Is Tax Base Diversification A Good Idea For School Financing?," Contemporary Economic Policy, Western Economic Association International, vol. 36(4), pages 678-691, October.
    3. Chimilila, Cyril, 2017. "Forecasting Tax Revenue and its Volatility in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 5(1), January.
    4. Keith Fitzgerald & Jacopo Bedogni, 2019. "Examining the Volatility of Ireland’s Tax Base in the Paradigm of Modern Portfolio Theory," The Economic and Social Review, Economic and Social Studies, vol. 50(3), pages 429-458.
    5. Marina Malkina & Rodion Balakin, 2015. "Correlation Assessment of Tax System Risk and Profitability in the Russian Regions," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(3), pages 241-255.
    6. Urooj Khan & N. Bugra Ozel, 2016. "Real Activity Forecasts Using Loan Portfolio Information," Journal of Accounting Research, Wiley Blackwell, vol. 54(3), pages 895-937, June.

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