STATE-LOCAL REVENUE DIVERSIFICATION, BALANCE, AND FISCAL PERFORMANCE

Revenue diversification and balanced use of revenue sources have long been held as desirable policy aims by many tax policy analysts, especi ally the Advisory Commission on Intergovernmental Relations. Ladd and Weist asserted that revenue balance is not a valid policy goal in and of itself. The disagreements between the two schools of thought have b een difficult to sort out in part because of differences in perspectiv es and in part because of the lack of an acceptable quantitative measu re of diversification and definition of balance. This article uses an empirical method for determining diversification and shows that past d efinitions of revenue balance have been overly narrow. However, in con trast to Ladd and Weist, the empirical measures of diversification do show that revenue balance is related, at the margin, to improved fisca l performance, and thus that balance remains a worthwhile policy aim.