PORTFOLIO ANALYSIS AND VERTICAL EQUITY - A NEW-YORK APPLICATION

This study makes two contributions to the literature on portfolio mode ls and the analysis of state finances. First, the study applies recent developments in time series analysis-unit root tests for stationarity -to develop more efficient estimates of tax growth and tax instability than heretofore. Second, the study extends the conventional tax portf olio model, which balances the portfolio mix to maximize stability for selected growth targets, to encompass a third tax policy goal: vertic al equity. The model is applied to New York State to demonstrate its p ractical usefulness as a fiscal tool for state policy analysts.