Growth and Variability in State Tax Revenue

An Anatomy of State Fiscal Crises

Randall G. Holcombe, Russell S. Sobel

• Publisher: Praeger
• Year: 1997
• Print ISBN: 9780313304231
• eBook ISBN: 9780313029998
• Edition: 1
• Topic: Economics
• Subtopic: Economic Policy
• Index: Economics

During recessions state government fiscal crises are widespread, as states find their revenues inadequate to meet their expenditure demands. This volume shows that state fiscal crises have only one significant cause: revenue downturns associated with recessions. Other analysts have argued that fiscal crises are the result of an interaction of many complex causes, including inadequate tax bases, increasing expenditure demands, and limits placed on state governments by voters. This analysis examines these other factors and shows that while they present significant challenges to state policymakers, they are not the cause of fiscal crises. The book presents an improved methodology for measuring cyclical variability of revenues and uses this methodology to show that there is no way to restructure state tax systems in order to appreciably reduce the fiscal stress associated with recessions. Fiscal stress can be lessened by setting aside revenues during prosperous years in a rainy day fund, but current rainy day funds are not large enough to eliminate the fiscal stress caused by recessions.

Table of contents

• Contents
• Illustrations
• Preface
• 1. Revenues and Expenditures: The Components of Crisis
• 2. State Government Spending
• 3. State Government Taxes
• 4. Budgeting for Stability: Some Principles
• 5. Measuring Cyclical Variability
• 6. The Cyclical Variability of State Government Revenues
• 7. The Variability of State Income and Sales Taxes
• 8. Is There a Trade-Off between Variability and Growth in State Government Tax Bases?
• 9. The Role of Rainy Day Funds in Easing State Fiscal Crises
• 10. Conclusion
• Bibliography
• Index