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The linkage between regional economic indexes and tax bases: evidence from New York

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Author Info

  • Jason Bram
  • Andrew Haughwout
  • James Orr
  • Robert Rich
  • Rae Rosen

Abstract

This paper examines the linkage between economic activity and tax revenues for New York State and New York City. Drawing upon the methodology of Stock and Watson, we use a dynamic single-factor model to estimate indexes of coincident economic indicators. We also construct measures of the sales and withholding tax bases. To conduct an empirical analysis of the relationship between the indexes of economic activity and the tax base series, we use vector autoregression and error correction models. The results provide strong evidence that the coincident indexes contain useful information for explaining monthly growth in the tax bases. However, much less evidence exists of a statistically significant linkage from the tax bases to the coincident indexes.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 188.

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Date of creation: 2004
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Handle: RePEc:fip:fednsr:188

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Related research

Keywords: Taxation ; Revenue ; Economic indicators ; Economic conditions - New York (State) ; Economic conditions - New York (N.Y.) ; Federal Reserve District; 2nd;

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References

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  1. Alan J. Auerbach & James R. Hines Jr., 2001. "Taxation and Economic Efficiency," NBER Working Papers 8181, National Bureau of Economic Research, Inc.
  2. 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.
  3. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  4. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
  5. Keith R. Phillips, 1988. "New tools for analyzing the Texas economy: indexes of coincident and leading economic indicators," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jul, pages 1-13.
  6. Mark, Stephen T. & McGuire, Therese J. & Papke, Leslie E., 2000. "The Influence of Taxes on Employment and Population Growth: Evidence from the Washington, D.C. Metropolitan Area," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 105-24, March Cit.
  7. James Orr & Rae D. Rosen, 1997. "The New York - New Jersey job recovery," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 3(Oct).
  8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  9. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  10. James Orr & Robert Rich & Rae Rosen, 2001. "Leading economic indexes for New York State and New Jersey," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 73-94.
  11. Theodore M. Crone & Kevin J. Babyak, 1996. "Looking ahead: leading indexes for Pennsylvania and New Jersey," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-14.
  12. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  13. Theodore M. Crone, 2000. "A new look at economic indexes for the states in the Third District," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-14.
  14. Theodore M. Crone, 2002. "Consistent economic indexes for the 50 states," Working Papers 02-7, Federal Reserve Bank of Philadelphia.
  15. Dye, Richard F. & McGuire, Therese J., 1991. "Growth and Variability of State Individual Income and General Sales Taxes," National Tax Journal, National Tax Association, vol. 44(1), pages 55-66, March Cit.
  16. Theodore M. Crone, 1994. "New indexes track the state of the states," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 19-31.
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Cited by:
  1. Theodore M. Crone & Alan Clayton-Matthews, 2004. "Consistent economic indexes for the 50 states," Working Papers 04-9, Federal Reserve Bank of Philadelphia.
  2. James Orr & Rae Rosen, 2004. "New York and New Jersey poised for modest job growth in 2005," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Dec).

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