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Smoothing state tax revenues over the business cycle: gauging fiscal needs and opportunities

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  • Yolanda Kodrzycki

Abstract

During the two most recent U.S. recessions in 2001 and in 2007?2009, state governments experienced an unusually high degree of fiscal stress due to increased revenue cyclicality. Expanding upon the aggregate evidence, this paper explores the degree to which individual states have experienced fluctuating tax receipts over the business cycle. The findings provide state policymakers with information to better understand the extent and causes of this tax revenue cyclicality and, in the context of balanced budget requirements, the efficacy of alternative measures that might be employed to smooth the sensitivity of state resources to economic conditions.

Suggested Citation

  • Yolanda Kodrzycki, 2014. "Smoothing state tax revenues over the business cycle: gauging fiscal needs and opportunities," Working Papers 14-11, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:14-11
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    References listed on IDEAS

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    1. Steven M. Sheffrin, 2004. "State Budget Deficit Dynamics and the California Debacle," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 205-226, Spring.
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    4. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    5. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    6. 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, John Wiley & Sons, vol. 73(2), pages 315-341, October.
    7. Jonathan A. Parker & Annette Vissing-Jorgensen, 2010. "The Increase in Income Cyclicality of High-Income Households and Its Relation to the Rise in Top Income Shares," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 1-70.
    8. Clemens, Jeffrey, 2013. "State Fiscal Adjustment During Times of Stress: Possible Causes of the Severity and Composition of Budget Cuts," MPRA Paper 55921, University Library of Munich, Germany.
    9. Howard Chernick & Cordelia Reimers & Jennifer Tennant, 2014. "Tax structure and revenue instability: the Great Recession and the states," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-22, December.
    10. Jennifer Weiner, 2011. "How does New Hampshire do it?: an analysis of spending and revenues in the absence of a broad-based income or sales tax," New England Public Policy Center Research Report 11-1, Federal Reserve Bank of Boston.
    11. James R. Hines Jr., 2010. "State Fiscal Policies and Transitory Income Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 313-350.
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    Cited by:

    1. David Cashin & Jamie Lenney & Byron Lutz & William Peterman, 2018. "Fiscal policy and aggregate demand in the USA before, during, and following the Great Recession," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(6), pages 1519-1558, December.
    2. Maria O. Kakaulina, 2021. "Projected shortfall in personal income tax revenues of regional governments in Russia due to the COVID-19 pandemic," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 7(1), pages 39-54.

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    More about this item

    Keywords

    state tax policy; revenue cyclicality; tax volatility; individual income tax;
    All these keywords.

    JEL classification:

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

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