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Optimal public deficit and tax-smoothing in the Spanish economy, 1850-2022

Author

Listed:
  • Emilio Congregado

    (Universidad de Huelva, Spain)

  • Vicente Esteve

    (Universidad de Valencia and Universidad de Alcalá, Spain)

  • Juan A. María A. Prats

    (Universidad de Murcia, Spain and European Institute, London School of Economics and Political Science, UK)

Abstract

In this paper, we provide a formal test of Barro’s tax-smoothing model, using Spanish data covering the period 1850-2022. First, we found that the tax-tilting component has been very important for the Spanish government and is a symptom of the existence of a public deficit bias that has existed in Spanish public finances over the sample period. Second, our empirical findings do also support the existence of tax-smoothing in Spanish fiscal policy throughout the sample period. Consequently, there is some evidence that the Spanish economy has engaged in tax-smoothing behavior over the period analyzed, as the Spanish governments responded to expected future changes in government spending by running budget imbalances, rather than altering contemporaneous government revenues.

Suggested Citation

  • Emilio Congregado & Vicente Esteve & Juan A. María A. Prats, 2024. "Optimal public deficit and tax-smoothing in the Spanish economy, 1850-2022," Working Papers 2401, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:2401
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    References listed on IDEAS

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    More about this item

    Keywords

    Optimal taxation; Public debt management; Tax-smoothing; Tax-tilting; Spain;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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