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The growth and volatility of state tax revenue sources in the Tenth District

  • R. Alison Felix

With the sluggishness in the national economy in 2008, many state governments are projecting budget shortfalls for the 2009 fiscal year. This trend is a concern to policymakers, as the health of a state's tax revenues is important to its economic growth and its ability to finance the public services that residents demand. State governments provide physical infrastructure, educate the future workforce, and protect people and property. In addition, in the Tenth Federal Reserve District, state and local governments employ over 16 percent of the workforce. ; While a number of factors influence the growth and volatility of state tax revenues, one key determinant is the composition of each state's tax portfolio. Governments desire a portfolio of tax instruments that allows for revenues to grow with the economy so that spending demands can be met without much change in tax rates. At the same time, stability in the revenue stream is important so that governments are not left with large financing constraints during downturns. ; Felix analyzes the impact of portfolio composition on the growth and stability of state tax revenues, particularly in the states that make up the Tenth District. She uses long-run and short-run elasticity estimates to analyze the growth and stability of each tax instrument and discusses implications for Tenth District states.

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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2008)
Issue (Month): Q III ()
Pages: 63-88

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Handle: RePEc:fip:fedker:y:2008:i:qiii:p:63-88:n:v.93no.3
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  1. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier.
  2. Don Fullerton & Gilbert E. Metcalf, 2002. "Tax Incidence," NBER Working Papers 8829, National Bureau of Economic Research, Inc.
    • Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
  3. Donald Bruce & William F. Fox & M.H. Tuttle, 2006. "Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 315–341, October.
  4. 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.
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