tax revenue volatility & labor mobility
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TAX REVENUE VOLATILITY & LABOR MOBILITY
Volatility of Tax Revenues
Why should we care about the volatility of our state tax revenues?
Our livelihood as a state depends on having revenues to fund state activities Investment/Planning Competition Solvency
Data Analysis
Want to see what factors contribute to volatility in tax revenues and then see how Louisiana fits into the big picture
We analyzed data on per capita state tax revenue collections from 1993-2007 Data is from the US Census Bureau Tax collections are adjusted for inflation
Volatility in State Tax Revenues
State Volatility Ranking
State Rank
Alaska 1
Vermont 2
Wyoming 3
California 4
New Jersey 5
New Hampshire 6
Louisiana 7
Connecticut 8
… …
Arizona 49
Texas 50
Determinants of Volatility
Why does Louisiana have such volatile state tax revenues? What determines a state’s volatility?
Tax Structure Dependence on specific types of taxes may
contribute to volatility Severance Taxes, Property Taxes Sales Taxes, Income Taxes, Corporate
Income Taxes
Determinants of Volatility Cont’d Income
States with higher incomes will likely have higher volatility
Income Distribution States with more unequal distributions of
income will likely have more volatility
Size Larger states will likely have lower volatility
Louisiana’s Tax Structure
Property Tax
Severance Tax
General Sales
Tax
Individual
Income Tax
Corporate
Income Tax
LA .5% 7.3% 32.6% 25.4% 4.8%
LA Rank 23 7 22 38 32
TX 0% 5.5% 50.3% 0% 0%
AR 6.5% .3% 37.8% 30.3% 4.8%
MS .4% .9% 48.7% 20.7% 5.2%
National Average
2.6% 3.4% 31.2% 30.6% 6.0%
Tax Structure & Volatility
Using data on state tax collections for all 50 states we estimated the relationship between volatility and the dependence of each state’s revenues on particular taxes
Elasticity = by what percentage does volatility increase/decrease when the dependence on a particular type of tax increases by 1%
Elasticity Illustration
Suppose that we estimated the income tax elasticity to be .75. This would mean that a 1% increase in a
state’s dependence on income tax revenue would increase volatility by .75%
Or, a 10% increase in a state’s dependence on income tax revenue would increase volatility by 7.5%
A negative income tax elasticity would indicate that increasing a state’s dependence on income tax revenue lowers volatility
Tax Structure Elasticities
Other Elasticities
We also estimated elasticities with regard to other factors that may affect volatility
Income Use data on Median Income in each state,
from the 2000 American Community Survey Size
Use population data from the 2000 Census Income Inequality
This one is a bit more complex
The Gini Coefficient
There is no perfect way to measure income inequality
The Gini Coefficient measures income inequality on a scale from 0 to 1 Closer to zero means income distribution is
more equal Closer to one means that income
distribution is more unequal
Generating the Gini Coefficient
Cumulative % of Households
Cumulative % of Income
20% 40% 60% 80% 100%
20%
40%
60%
80%
100% Line of Equality
Lorenz Curve
EqualityofLineBelowArea
CurvesBetweenAreaGini
Income, Size and Inequality in Louisiana
Median Income
Population
Gini Coefficien
t
LA $37,303 4,468,976 .483
LA Rank 49 22 2
TX $47,437 20,851,820 .470
AR $39,959 2,673,400 .458
MS $39,406 2,844,658 .478
National Average $49,353 5,616,997 .446
Other Elasticity Estimates
Louisiana & Volatility
Positive Factors Very low dependence on property taxes
Negative Factors Very high dependence on severance taxes Very high income inequality
Even Worse Factors Volatility in Louisiana is far greater than it
is estimated to be given its characteristics
Plot of Volatility and Median Income
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Median Income
Skills and Migration
One vital requirement for growth at the state level is the skill composition and quality of the work force
We will take a look at the skill composition of the Louisiana workforce and examine the skill and quality composition of those migrating in and out of the state
Skill Composition of Labor Force
Net Migration of Working Age Persons
In-Migration
Out-Migration
Net Out-Migration National Rank
Louisiana
560,199 665,915
105,716 2
Texas
3,239,739
2,051,737
(1,188,002) 50
Arkansas
519,070 344,950
(174,120) 36
Mississippi
405,226 395,102
(10,124) 8
Net Migration of Core Labor Force
In-Migration
Out-Migration
Net Out-Migration National Rank
Louisiana
256,856 306,613
50,027 2
Texas
1,481,116
1,020,340 (460,776) 50
Arkansas
242,043 152,024
(90,019) 36
Mississippi
183,688 183,373
(315) 7
Net Out-Migration of Working Age Persons by Skill Group
Bach Degree
or Higher Some
College HS Diploma Less Than HS
Louisiana 32,759 29,595 27,162 16,200
LA Rank 2 5 3 1
Texas (336,259) (247,499) (236,014) (368,230)
Arkansas (24,895) (44,217) (61,615) (43,393)
Mississippi 4,470 6,496 (9,094) (11,996)
Skill Distribution of LA Net Out-Migration of Working Age
Persons
Net Out-Migration of Core Labor Force
by Skill Group
Bach Degree
or Higher Some
College HS Diploma Less Than HS
Louisiana 23,306 14,028 11,143 1,550
LA Rank 4 6 5 7
Texas (160,611) (121,487) (92,215) (86,463)
Arkansas (18,112) (20,443) (31,002) (20,462)
Mississippi 1,472 4,392 (4,043) (2,136)
Skill Distribution of LA Net Out-Migration of Core Labor Force
Worker Quality
While education is a good indicator of the skill level of an individual, it is not the only factor that determines the quality of a worker
Some workers have better aptitudes than others which in turn makes them more successful in their line of work
We want to see whether the workers that are coming in and going out of Louisiana are high or low quality workers given their skill characteristics
Quality of Louisiana Working Age Migrants Relative to National Average
Quality of Louisiana Core Labor Force Migrants Relative to National Average
Louisiana and Migration
Louisiana’s population has been shrinking over the past 8 years Some of that due to Katrina
The decline in population is more heavily skewed toward individuals with higher levels of education
Across all skill groups the average worker we import is of higher quality than the average worker we export
Questions?
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