Serving the Quantitative Finance Community
Value of Future Tax Revenues
A municipality, such as a State of County, usually has a main source of revenue the future collection of taxes (e.g., sales tax). If the sales taxes do not come in as forecasted, then the municipality will need to make up the difference through another funding mechanism. What is the best way to determine the value of this future revenue stream today? What discount rate should be applied to these volatile revenues? Have there been any papers or research published that addresses this?Thanks
Value of Future Tax Revenues
I would imagine this has been done before, but if you want to think creatively you might model the government's tax revenue stream as a call option on the output of the underlying economy.