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Tax Base Elasticities: A Multi-State Analysis of Long-Run and Short-Run Dynamics

Author

Listed:
  • Donald Bruce

    () (Center for Business and Economic Research, University of Tennessee)

  • William F. Fox

    () (Center for Business and Economic Research, University of Tennessee)

  • M.H. Tuttle

    () (Department of Economics and International Business, Sam Houston State University)

Abstract

We examine the relative dynamic responses of state personal tax revenues and sales tax bases to changes in state personal income. Our econometric analysis, which includes separate analyses of long-run and short-run dynamics for each state, permits the estimation of asymmetric short-run responses depending upon the relationship between current and expected tax base growth. Results indicate that the average long-run elasticity for income taxes is more than double that for sales taxes. Most states have asymmetric short-run income elasticities, which are again greater for income taxes than for sales taxes. However, a joint analysis of long- and short-run dynamics reveals that neither tax is universally more volatile. After calculating state-specific income elasticities for both taxes, we employ cross-section regression techniques to explain the variation in elasticities across states. Several policy factors are found to be important, including elements of tax bases and rate structures.

Suggested Citation

  • 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.
  • Handle: RePEc:sej:ancoec:v:73:2:y:2006:p:315-341
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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