AbstractThe state of Arizona recently established a temporary, blue‐ribbon committee to evaluate the state's fiscal system and to recommend changes that would improve the system. The impetus for the committee was a series of budgetary difficulties in the 1980s that lawmakers hoped might be avoided in the future by implementing major structural changes suggested by a long‐run analysis of the state's economy and taxes and expenditures. The findings and recommendations of the committee are relevant for states across the country. It is likely that many states will be faced with tough budgetary challenges in the decade of the 1990s because the states' revenue systems have not adapted to the changes in the level and nature of state spending responsibilit