Transcript GDP 1967-2007

Minnesota’s GDP Growth Rate
Exceeded the US Average, 1967-2007
Annual % Change
US
8.00
MN
6.98
6.84
5.72
6.00
6.04
4.00
2.00
0.00
Total
Per Capita
Payroll Employment Growth
1972-2007
120%
100%
80%
60%
40%
20%
0%
MN
US
Payroll Employment in Minnesota Has
Grown Faster than the US Average
Index
1972 = 100
250
200
150
100
US
MN
50
0
1972
1976
1980
1984
1988
1992
1996
2000
2004
Manufacturing Employment
1972-2000
1972=100
175
150
125
100
75
50
Minnesota
25
0
United States
Minnesota’s Unemployment Rate Has
Been Well Below the US Average
Unemployment
Rate
12.5
10.0
7.5
5.0
2.5
US
MN
0.0
1976
1980
1984
1988
1992
1996
2000
2004
From 2004 to 2007 Minnesota
Underperformed the US Averages
• Personal income growth
US 6.2%
MN 4.4%
• Per capita personal income growth
US 16.6%
MN 13.5%
• GDP growth
US
8.4%
MN 4.8%
• GDP per capita growth
US
5.4% MN 2.6%
Minnesota Payroll Employment Has
Struggled Since Early 2006
Percent Change From
February 2001
5
4
3
2
1
0
-1
-2
US
MN
-3
Jan July Jan July Jan July Jan July Jan July Jan July Jan July Jan
01
02
03
04
05
06
07
08
Minnesota’s Unemployment Rate
Now Is Similar to the US Average
Unemployment Rate
8
6
4
MN
2
US
0
2004
2005
2006
2007
2008
US Manufacturing Employment Fell
Faster Than MN, 2000-2007
Index: 2000=100
125
100
75
50
US
25
MN
0
2000
2001
2002
2003
2004
2005
2006
2007
0%
-5%
-10%
Nevada
Wyoming
Arizona
Idaho
Utah
Florida
Montana
New Mexico
Hawaii
Alaska
Texas
North Dakota
Washington
South Dakota
Oregon
Virginia
D.C.
Maryland
North Carolina
Oklahoma
Nebraska
Colorado
Georgia
South Carolina
California
United States
New Hampshire
Delaware
Arkansas
Alabama
Rhode Island
Minnesota
Vermont
West Virginia
Iowa
Tennessee
Kansas
Maine
Kentucky
New Jersey
Pennsylvania
Missouri
Wisconsin
New York
Connecticut
Louisiana
Mississippi
Indiana
Illinois
Massachusetts
Ohio
Minnesota Ranked 30th in
Employment Growth, 2000-2007
30%
25%
20%
15%
10%
5%
0%
-5%
North Dakota
D.C.
New York
Louisiana
Montana
Vermont
Hawaii
Oregon
Maryland
South Dakota
Iowa
Alabama
Wyoming
Nebraska
Rhode Island
Florida
Oklahoma
Virginia
Kansas
California
Arkansas
New Mexico
Idaho
Pennsylvania
Connecticut
Minnesota
New Jersey
Nevada
Tennessee
United States
Kentucky
Arizona
Massachusetts
North Carolina
Texas
Utah
Maine
West Virginia
Mississippi
Washington
Delaware
Wisconsin
New Hampshire
Illinois
Alaska
Ohio
Missouri
South Carolina
Colorado
Indiana
Georgia
Michigan
Minnesota Ranked 24th in Real Per
Capita GDP Growth, 2000-2007
30%
25%
20%
15%
10%
5%
Real Per Capita GDP Growth
Compared to Neighboring States
2000-2007
30%
25%
20%
15%
10%
5%
0%
North
Dakota
South
Dakota
Iowa
Minnesota
United
States
Wisconsin
Real Per Capita GDP Growth
Compared to Midwestern States
2000-2007
20%
15%
10%
5%
0%
-5%
Real Per Capita GDP Compared to
High Tech States 2000-2007
20%
15%
10%
5%
0%
Difference in
growth rate
12
Difference in Per Capita GDP
Growth (MN - US), 2000-07
9.0
8.4
8.3
8
4
0
0.19 0.5
-4
-4.2
-8
-4.7 -4.7
-6.0 -6.1 -6.3 -6.5
-8.4
-12
-16
-11.2
Difference in Per Capita Mfg GDP
Growth
(MN
US),
2000-07
Diference in
Growth Rate
125
104.4
100
75
50
25
34.1
32.6
23.6
14.4
10.1
9.1
2.7
2.4
0
-25
-3.1
-15.8
-50
-75
-100
-90.0
Portfolio Theory Suggests Using a Tax System
that Minimizes Volatility for a Given Growth Rate
• Given the trend growth rate, variance and covariance of each major
tax, an Efficiency Frontier Line (EFL) can be estimated
– The EFL shows combinations of taxes that provide the lowest
volatility for each growth rate
– Points below the frontier are suboptimal.
• The EFL is determined using quadratic programming to minimize
state tax revenue volatility, σ2T, given growth rates gT
– Minimize
– Subject to:
and
where ω is the weight of each tax.
and
Estimated EFL for Minnesota's General Fund
Tax Revenue Portfolio, FY 2005-2007
One-Year Post MVST Phase-Out
Portfolio Trend
Growth Rate
10%
Efficiency Frontier Line
9%
8%
7%
MN's Actual One-Year GF Tax Mix
(Post MVST Phase-Out)
7.7% Trend Growth Rate &
3.26% Standard Deviation
6%
5%
1.75%
2.25%
2.75%
3.25%
3.75%
Portfolio Volatility
4.25%
4.75%
Actual vs. Efficient MN One-Year Tax-Mix
Given the Current Trend Growth Rate
Trend Growth Rate
Volatility
(Standard Deviation)
Actual
FY 2005-2007
Portfolio
Efficient
Tax Mix
Portfolio
(Efficient Less Actual)
7.70%
7.70%
0.00%
3.26%
3.09%
-0.17%
31.2%
7.4%
48.1%
13.3%
60.3%
13.1%
9.2%
17.4%
+29.2%
+5.6%
-39.0%
+4.2%
100.0%
100.0%
Difference:
Share of Total Tax Revenue
General Sales
Corporate Income
Individual Income
Other Revenues
Total
Estimating the Volatility of a System of Taxes
• Markowitz’s modern portfolio theory used as
a guide:
– The expected growth rate in revenues is the
weighted sum of the individual growth rates
– Portfolio volatility is the square root of the
weighted sum of the variances and covariances
of the individual components