Estimating the sensitivity of state tax revenue to cyclical and wealth effects |
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Authors: | William Seyfried Louis Pantuosco |
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Institution: | (1) Department of Accounting, Finance, and Economics, Winthrop University, 29733 Rock Hill, SC |
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Abstract: | In this study, we estimate the elasticities of alternative sources of state tax revenue relative to the economy, as measured
by GSP, and to wealth, as measured by the S&P500. Next, efficient tax frontiers are estimated for each state by minimizing
the standard deviation, given the current average growth rate of revenues. It is shown how states could attain the same expected
growth rate of tax revenues with less volatility by modifying the composition of their existing tax structures. In most cases,
corporate income taxes are found to reduce efficiency due to their high volatility without a correspondingly high growth rate. |
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