Understanding and Measuring Elasticity, Volatility, and Implications for Local Government Fiscal Health

Abstract

The most recent fiscal crisis and resulting economic environment has posed serious implications for the fiscal health of local governments. Local governments have been struggling with manipulating revenue structures in response to shrinking tax bases and decreased consumer demand for taxable goods and services. Some local property markets have seen significant decreases in home values; something that was never expected to happen. Assessed values have fallen and tax delinquency has risen, thereby leading to decreased property tax revenues. Demand for both consumer goods and fee-based government services has declined as unemployment is up and consumers have tightened their belts to deal with the economic crisis, which has led to significant shortfalls in sales tax and user fee revenues. All of these effects of the economic crisis and state of the economy directly influence the performance of local government revenue structures and consequently affect local government fiscal health.