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Forecasting the New England States’ Tax Revenues in the Time of the COVID-19 Pandemic

Author

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  • Bo Zhao

Abstract

State governments across the United States face the prospect of sharply declining tax revenues due to the COVID-19 pandemic. They need reliable and up-to-date revenue forecasts to make financially sound policy decisions during this public health and economic crisis. This paper proposes an objective, transparent, simple, and efficient method to forecast state tax revenues in this time of the COVID-19 pandemic. The model is based on only two input factors: the state unemployment rate and an empirically determined time trend. The predictions from the model closely track the actual values of tax revenues for the New England states over the past 25 years. Using this method, this paper forecasts state tax revenues for fiscal year 2021 and suggests large decreases in the New England states. The paper discusses policy options to address the expected declines in revenues and highlights the urgent need for more federal grants without tight strings attached.

Suggested Citation

  • Bo Zhao, 2020. "Forecasting the New England States’ Tax Revenues in the Time of the COVID-19 Pandemic," Current Policy Perspectives 88356, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbcq:88356
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    Citations

    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Tax revenue

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    Cited by:

    1. Lahiri, Kajal & Yang, Cheng, 2022. "Boosting tax revenues with mixed-frequency data in the aftermath of COVID-19: The case of New York," International Journal of Forecasting, Elsevier, vol. 38(2), pages 545-566.

    More about this item

    Keywords

    COVID-19; revenue forecasting; state tax revenues; NEPPC;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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