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Singaporeã¢Â‚¬Â„¢S Recurrent Budget Surplus The Role Of Conservative Growth Forecasts

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  • Tilak Abeysinghe

    (SCAPE)

  • Ananda Jayawickrama

Abstract

Aided by strong economic growth the Singapore government has been able to keep both the tax rate and the government expenditure rate low and yet generate healthy budget surpluses year after year. Although the gap between the tax rate and the government expenditure rate is the obvious source of the surplus, this paper shows the presence of another subtle source, a surplus generated by conservative growth forecasts that lay the base for revenue projections. An omitted variable bias in a model based on the tax smoothing hypothesis led us to consider the role played by the growth forecast error in predicting the budget surplus. Our computations show that on average the underprediction of the tax base (GDP) must have contributed about $376 million per year to the realized budget surplus over the period 1990-2005. This appears to be simply a byproduct of the Governments philosophy of fiscal prudence.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22557.

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Date of creation: Jan 2007
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Handle: RePEc:eab:macroe:22557

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Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org
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Keywords: Tax smoothing model; Reported and adjusted budget surplus;

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  1. Olekalns, Nilss, 1997. "Australian Evidence on Tax Smoothing and the Optimal Budget Surplus," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 73(222), pages 248-57, September.
  2. Huang, Chao-Hsi & Lin, Kenneth S., 1993. "Deficits, government expenditures, and tax smoothing in the United States: 1929-1988," Journal of Monetary Economics, Elsevier, Elsevier, vol. 31(3), pages 317-339, June.
  3. Serletis, Apostolos & Schorn, Richard G, 1999. "International Evidence on the Tax- and Revenue-Smoothing Hypotheses," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 51(2), pages 387-96, April.
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