Working Paper: NBER ID: w27426
Authors: Jeffrey Clemens; Stan Veuger
Abstract: We assess the Covid-19 pandemic’s implications for state government sales and income tax revenues. We estimate that the economic declines implied by recent forecasts from the Congressional Budget Office will lead to a shortfall of roughly $106 billion in states’ sales and income tax revenues for the 2021 fiscal year. This is equivalent to 0.5 percent of GDP and 11.5 percent of our pre-Covid sales and income tax projection. Additional tax shortfalls from the second quarter of 2020 may amount to roughly $42 billion. We discuss how these revenue declines fit into several pieces of the broader economic context. These include other revenues (e.g., university tuition and fees) that are also at risk, as well as assets (e.g., pension plan holdings) that are at risk. Further dimensions of context include support enacted through several pieces of federal legislation, as well as spending needs necessitated by the public health crisis itself.
Keywords: COVID-19; State Tax Revenues; Economic Impact
JEL Codes: H10; H12; H71; H79
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| severity of COVID-19 crisis (H12) | declines in employment and consumption (E20) |
| declines in employment and consumption (E20) | changes in revenue bases (H20) |
| changes in revenue bases (H20) | changes in revenues (O39) |
| COVID-19 severity (I14) | economic declines (F44) |
| economic declines (F44) | reduced tax bases (H29) |
| reduced tax bases (H29) | lower tax revenues (H29) |
| COVID-19 severity (I14) | declines in consumption (D12) |
| COVID-19 severity (I14) | declines in income (E25) |
| declines in income (E25) | tax revenue shortfalls (H27) |
| COVID-19 severity (I14) | tax revenue shortfalls (H27) |