The Optimal State Tax Portfolio Model: An Extension

Several studies have estimated a two-goal efficiency frontier of optimal tax portfolios and found that the actual portfolio under analysis was inefficient relative to the efficiency frontier. Revenue growth and stability are the two goals recognized. Equity is a third goal, and this paper expands the methodology utilized to estimate a three-goal efficiency frontier. It is found that in the case of New York, the actual portfolio is relatively close to the three-goal efficiency frontier. This result suggests that for states where tax distributional issues are important, a three-goal, instead of a twogoal, efficiency frontier is a better measure of achieved results.