Growth and Variability of State Individual Income and General Sales Taxes

Two important characteristics of state tax systems are the trend growth rate and cyclical variability of tax revenues. We use national aggregate time series data to estimate the trend rate of growth and the deviation from trend for several components of state general sales and individual income tax bases. The results indicate great variety in growth and variability characteristics across tax base components. One important finding is that growth and variability are sometimes inversely related. Another interesting finding is that, depending on structural design, income taxes can be more stable than sales taxes.