As state governments in the US are also constrained in their
external financing and habitually tend to suffer from cyclical
budget contractions, the vast majority of the existing literature
on tax revenue growth and volatility is concerned with US federal
states. It dates back to the seminal study by Groves and
Kahn (1952). Early studies that followed (e.g., Legler & Shapiro,
1968; Wilford, 1965) analyzed state and local tax revenue,
conditioning revenues on income using standard OLS and not
distinguishing between the long and short run. By the early
1970s, Williams, Anderson, Froehle, and Lamb (1973) demonstrated
that two taxes can follow the same growth trend while
experiencing a distinct variability around it. Their findings
suggest that a single statistic for revenue elasticity cannot be
used to analyze growth and variability at the same time and
that a possible trade-off between growth and stability exists.
The succeeding studies by White (1983) and Fox and Campbell
(1984), therefore, considered different taxes and tax structures,
confirming this trade-off and finding personal income
tax (PIT) and corporate income tax (CIT) to be not only the
fastest growing but also the most unstable taxes. While, for
example, White (1983) restricted his analysis to one state,