The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
This paper examines the linkage between economic activity and tax revenues for New York State and New York City. Drawing upon the methodology of Stock and Watson, we use a dynamic single-factor model to estimate indexes of coincident economic indicators. We also construct measures of the sales and withholding tax bases. To conduct an empirical analysis of the relationship between the indexes of economic activity and the tax base series, we use vector autoregression and error correction models. The results provide strong evidence that the coincident indexes contain useful information for explaining monthly growth in the tax bases. However, much less evidence exists of a statistically significant linkage from the tax bases to the coincident indexes.
For a published version of this report, see Robert Rich, Jason Bram, Andrew Haughwout, James Orr, RaeRosen, and Rebecca Sela, "Using Regional Economic Indexes to Forecast Tax Bases: Evidence from NewYork," Review of Economics and Statistics 87, no. 4 (November 2005): 627-34.