Tax betas in state and local government tax structure analysis

This study extends the beta model used for the analysis of tax structures first offered by Brooking, Triplett, and Wells. This beta model’s theoretical foundations draw both from the portfolio standard deviation approach that has been developed in the recent public finance literature, and from the established income elasticity approach. To compare these three models, an empirical examination of a tax structure is made by calculating the efficient (minimum volatility) portfolio of taxes, using the different models. The results are contrasted, with strengths and weaknesses of the income elasticity, standard deviation, and the beta methodologies each being analyzed.