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Understanding Forecasting Errors in State Personal Income Tax Revenues: The Role of Capital Gains

Author

Listed:
  • Asa Ferguson
  • Liam Marshall
  • Jonathan C. Rork

Abstract

Many states face challenges in producing accurate forecasts of tax revenue from personal income. Using data from 1996 to 2019, we look at how growth in the various base components of personal income influence the accuracy of a state's forecast of revenue from personal income taxation. We consistently find growth in capital gains, which has the highest year-to-year volatility among personal income components, to be associated with a state underestimating its actual revenues from personal income by at least 2 percentage points.

Suggested Citation

  • Asa Ferguson & Liam Marshall & Jonathan C. Rork, 2023. "Understanding Forecasting Errors in State Personal Income Tax Revenues: The Role of Capital Gains," Public Finance Review, , vol. 51(5), pages 649-668, September.
    • Handle: RePEc:sae:pubfin:v:51:y:2023:i:5:p:649-668
    DOI: 10.1177/10911421231168724
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    References listed on IDEAS

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    1. 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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    Keywords

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    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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