Using Regional Economic Indexes to Forecast Tax Bases: Evidence from New York

  • Rich R
  • Bram J
  • Haughwout A
 et al. 
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This paper evaluates the use of measures of regional economic
activity to forecast tax revenues for New York State and New York City
at 3-, 6-, and 12-month horizons. We construct sales- and withholding-tax
base series and then apply the methodology of Stock and Watson (1989,
1991) to estimate regional indexes of coincident economic indicators.
Employing an out-of-sample forecasting framework, we find that the use
of the coincident indexes leads to statistically and economically significant
improvements in tax base forecasts compared to those generated from
univariate autoregressions. In addition, the coincident indexes produce
forecasts that are generally more accurate than forecasts that rely on the
use of the coincident indicators separately. Though our analysis focuses on
forecasting movements in tax revenue at the state or local level, it is also
intended to draw attention to the value the indexes may provide in other

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  • Robert Rich

  • Jason Bram

  • Andrew Haughwout

  • James Orr

  • Rae Rosen

  • Rebecca Sela

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