Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities Smoothing State Tax Revenues over the Business Cycle: Gauging Fiscal Needs and Opportunities

By Yolanda K. Kodrzycki

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.

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