Advanced Search
MyIDEAS: Login

Balanced budget vs. Tax smoothing in a small open economy: A welfare comparison

Contents:

Author Info

  • Angyridis, Constantine
Registered author(s):

    Abstract

    The objective of this paper is to investigate the effect of lending and borrowing constraints on the dynamics of public debt and optimal taxation policy in the context of a general equilibrium model with tax smoothing. The results from the numerical simulation of the model show significant welfare gains, provided that the policymaker is allowed to borrow and lend in order to smooth taxes across time instead of maintaining a balanced budget at all times. Moreover, for a specific process for asset prices, it is also shown that if the government can issue state-contingent debt then overall welfare can be further improved substantially.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/B6X4M-4TG35G0-1/2/ad5f1ad7b79fc014498289cc90f0e1e9
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Macroeconomics.

    Volume (Year): 31 (2009)
    Issue (Month): 3 (September)
    Pages: 438-463

    as in new window
    Handle: RePEc:eee:jmacro:v:31:y:2009:i:3:p:438-463

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/inca/622617

    Related research

    Keywords: Balanced budget Complete markets Incomplete markets Welfare analysis;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Christopher Sleet, 2004. "Optimal Taxation with Private Government Information," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1217-1239, October.
    2. Marcet, Albert & Scott, Andrew, 2001. "Debt and Deficit Fluctuations and the Structure of Bond Markets," CEPR Discussion Papers 3029, C.E.P.R. Discussion Papers.
    3. Stephanie Schmitt-Grohe & Martin Uribe, 1995. "Balanced-budget rules, distortionary taxes, and aggregate instability," Finance and Economics Discussion Series 95-44, Board of Governors of the Federal Reserve System (U.S.).
    4. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
    5. Lloyd-Ellis, Huw & Zhan, Shiqiang & Zhu, Xiaodong, 2005. "Tax Smoothing with Stochastic Interest Rates: A Reassessment of Clinton's Fiscal Legacy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 699-724, August.
    6. Sleet, Christopher & Yeltekin, Sevin, 2006. "Optimal taxation with endogenously incomplete debt markets," Journal of Economic Theory, Elsevier, vol. 127(1), pages 36-73, March.
    7. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal Fiscal Policy in a Business Cycle Model," NBER Working Papers 4490, National Bureau of Economic Research, Inc.
    8. den Haan, Wouter J & Marcet, Albert, 1990. "Solving the Stochastic Growth Model by Parameterizing Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 31-34, January.
    9. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
    10. V. V. Chari & Patrick J. Kehoe, 1998. "Optimal fiscal and monetary policy," Staff Report 251, Federal Reserve Bank of Minneapolis.
    11. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
    12. International Monetary Fund, 1999. "Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia," IMF Working Papers 99/63, International Monetary Fund.
    13. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Optimal Fiscal and Monetary Policy Under Sticky Prices," NBER Working Papers 9220, National Bureau of Economic Research, Inc.
    14. Juan Pablo Nicolini & Francisco Buera, 2002. "Optimal Maturity of Governement Debt without state contingent bonds," Department of Economics Working Papers 016, Universidad Torcuato Di Tella.
    15. David R. Stockman, 2004. "Default, Reputation and Balanced-Budget Rules," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 382-405, April.
    16. David R. Stockman, 2001. "Balanced-Budget Rules: Welfare Loss and Optimal Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 438-459, July.
    17. Paul Cashin & Nilss Olekalns & Ratna Sahay, 1998. "Tax Smoothing in a Financially Repressed Economy - Evidence from India," IMF Working Papers 98/122, International Monetary Fund.
    18. Correia, Isabel H., 1996. "Dynamic optimal taxation in small open economies," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 691-708, April.
    19. Sargent, Thomas J & Velde, Francois R, 1995. "Macroeconomic Features of the French Revolution," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 474-518, June.
    20. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    21. S. Rao Aiyagari & Albert Marcet & Thomas J. Sargent & Juha Seppala, 2002. "Optimal Taxation without State-Contingent Debt," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1220-1254, December.
    22. Mark Strazicich, 2002. "International evidence of tax smoothing in a panel of industrial countries," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2325-2331.
    23. Strazicich, Mark C., 1997. "Does Tax Smoothing Differ by the Level of Government? Time Series Evidence from Canada and the United States," Journal of Macroeconomics, Elsevier, vol. 19(2), pages 305-326, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:31:y:2009:i:3:p:438-463. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.