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International evidence of tax smoothing in a panel of industrial countries

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  • Mark Strazicich

Abstract

A panel of industrial countries is examined for evidence of 'tax smoothing'. Tax smoothing results when governments minimize tax distortions over time. The model provides a positive theory of government debt and is due primarily to Barro. Unit root tests are performed in panel data to test the null hypothesis of nonstationary tax rates. Panel regressions are then undertaken to test the null hypothesis that tax rate changes are unpredictable and test for evidence of an alternative hypothesis. Political and economic variables are examined for their ability to predict tax rate changes. Overall, the results cannot reject the null hypotheses and support tax smoothing by national governments.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 34 (2002)
Issue (Month): 18 ()
Pages: 2325-2331

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Handle: RePEc:taf:applec:v:34:y:2002:i:18:p:2325-2331

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  1. Benjamin, Daniel K & Kochin, Levis A, 1982. "A Proposition on Windfalls and Taxes When Some but Not All Resources Are Mobile," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 393-404, July.
  2. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
  3. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  4. Sahasakul, Chaipat, 1986. "The U.S. evidence on optimal taxation over time," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 251-275, November.
  5. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  6. 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.
  7. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
  8. Robert J. Barro, 1981. "On the Predictability of Tax-Rate Changes," NBER Working Papers 0636, National Bureau of Economic Research, Inc.
  9. Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 317-339, June.
  10. Kochin, Levis A. & Benjamin, Daniel K. & Meador, Mark, 1985. "The observational equivalence of rational and irrational consumers if taxation is efficient," Proceedings, Federal Reserve Bank of San Francisco, issue 7, pages 103-125.
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Cited by:
  1. Angyridis, Constantine, 2009. "Balanced budget vs. Tax smoothing in a small open economy: A welfare comparison," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 438-463, September.
  2. Ananda Jayawickrama & Tilak Abeysinghe, 2013. "The experience of some OECD economies on tax smoothing," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2305-2313, June.
  3. Dimitris K. Christopoulos & John Loizides & Efthymios G. Tsionas, 2009. "Electoral Motives, Partisan Motives And Dynamic Optimality With Many Taxes: An International Investigation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(1), pages 94-113, 02.

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