STATE AND LOCAL PROPERTY, INCOME, AND SALES TAX ELASTICITY: ESTIMATES FROM DYNAMIC HETEROGENEOUS PANELS

We estimate the responsiveness of state and local property, income, and sales tax revenues to state gross domestic product (GDP) changes using U.S. Census data over the period 1967-2012. Long-run and short-run elasticities are estimated using panel time series methods designed for dynamic heterogeneous panels (Mean Group (MG), Pooled Mean Group (PMG), and Dynamic Fixed Effects (DFE) estimators). These methods enable us to estimate substantial heterogeneity in elasticities for each major revenue source across states. For property tax systems, in particular, we analyze the tax administration and tax limitation factors that contribute to the observed stability and resilience of that major local government revenue source.