Has Sweden’s government budget policy been too discretionary? Evidence from a generalization of the tax smoothing hypothesis
AbstractBarro's (1979) tax smoothing hypothesis (TSH) assumes that the government is always subject to an optimal degree of discretion in budget policy, i.e., optimal in the sense that the welfare costs from taxation are minimized. This paper proposes a generalization of the TSH that relaxes this crucial assumption. Postwar evidence for Sweden indicates that in contrast to the TSH, the generalized model provides close to a perfect fit: Tax smoothing behavior in combination with more discretion in budget policy relative to what is optimal, can explain all shifts in the central government's budget balance, including the dramatic shifts during the period 1970-96.
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Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 89.
Length: 26 pages
Date of creation: 18 Feb 2003
Date of revision:
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Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Tax smoothing; Discretion; Budget policy; Budget deficits;
Find related papers by JEL classification:
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-02-24 (All new papers)
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