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
0.000040
+11.4%
Volatility in Total State Tax Revenue
0.000035
0.000030
-11.3%
0.000025
0.000020
0.000015
-75.8%
0.000010
0.000005
-94.6%
0.000000
Louisiana
Texas
Arkansas
Mississippi
National
Average
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
Individual Corporate
Severance General
Income
Income
Tax
Sales Tax
Tax
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
% Increase in Volatility Resulting from a 10%
Increase in Dependence on Each Tax
16.0%
15.0%
14.6%
14.0%
11.5%
12.0%
10.0%
8.0%
6.1%
6.0%
4.4%
4.0%
2.0%
0.0%
Property
Sales
Income
Corp
Severance
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 %
Gini 
of Income
100%
Area Between Curves
Area Below Line of Equality
Line of Equality
80%
60%
40%
Lorenz Curve
20%
20%
40%
60%
80%
100%
Cumulative % of Households
Income, Size and Inequality in Louisiana
Median
Income
Population
Gini
Coefficient
$37,303
4,468,976
.483
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
LA
LA Rank
Other Elasticity Estimates
57.6%
60.0%
% Change in Volatility Resulting from a 10%
Increase in Each Variable
50.0%
40.0%
36.1%
30.0%
20.0%
10.0%
0.0%
Median Income
-10.0%
Population
-4.6%
Gini Coefficient
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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nc
mo
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mi
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nm
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hi
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Median Income
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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
100%
90%
13.5%
16.7%
12.8%
14.2%
11.6%
80%
70%
35.1%
26.7%
34.5%
32.1%
28.4%
60%
50%
40%
29.3%
30.4%
30.8%
31.2%
33.2%
30%
20%
10%
22.1%
26.2%
Louisiana
Texas
21.5%
20.5%
29.2%
0%
Arkansas Mississippi
National
Average
HS Dropouts
HS Diploma
Some College
Bach Degree or Higher
Net Migration of Working Age Persons
InMigration
OutNet
Migration 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
InMigration
OutNet
Migration 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
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)
HS Diploma Less Than HS
Skill Distribution of LA Net Out-Migration
of Working Age Persons
15.3%
31.0%
25.7%
28.0%
Bach Degree or Higher
Some College
HS Diploma
Less Than HS
Net Out-Migration of Core Labor Force
by Skill Group
Bach Degree
or Higher
Some
College
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)
HS Diploma Less Than HS
Skill Distribution of LA Net Out-Migration
of Core Labor Force
3.1%
22.3%
46.6%
28.0%
Bach Degree or Higher
Some College
HS Diploma
Less Than HS
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 Average Migrant Relative to
the National Average
1.50
1.00
1.24
-0.50
0.40
Bach Degree or Some College
Better
-1.00
-1.50
-1.31
-2.00
-2.50
-3.00
1.02
0.67
0.50
0.00
1.10
-2.96
HS Degree
Less than HS
-0.20
In-Migrants
Out-Migrants
Quality of Louisiana Core Labor Force
Migrants Relative to National Average
Ability of Average Migrant Relative to
the National Average
2.00
1.53
1.50
1.00
1.46
0.91
0.66
0.50
0.00
-0.50
0.11
Bach Degree or
Better
Some College
-0.17
-1.00
-1.50
-2.00
-1.57
-2.50
-3.00
HS Degree
-2.66
Less than HS
In-Migrants
Out-Migrants
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?