The Cyclicality of Federal Receipts

The CBO recently projected that the federal government will collect about 15.3 percent of GDP in revenue during the 2011 fiscal year. Although this is higher than 2009 or 2010, federal receipts will still be much lower than the average from 1981 to 2007. The slow economic recovery explains a portion of this deviation from historical norms. Analysts use cyclically-adjusted measures to identify the degree to which the tax-to-GDP ratio is due to temporary economic conditions versus other factors. This article briefly explains how the business cycle can affect the ratio of federal receipts to GDP.