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.
Download InfoIf 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.
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:
Contact details of provider:
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)
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.:
- Olekalns, Nilss, 1997.
"Australian Evidence on Tax Smoothing and the Optimal Budget Surplus,"
The Economic Record,
The Economic Society of Australia, vol. 73(222), pages 248-57, September.
- Olekalns, N., 1996. "Australian Evidence on Tax Smoothing and the Optimal Budget Surplus," Department of Economics - Working Papers Series 538, The University of Melbourne.
- Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
- Flavin, Marjorie, 1993. "The Excess Smoothness of Consumption: Identification and Interpretation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 651-66, July.
- Ghosh, Atish R, 1995. "Intertemporal Tax-Smoothing and the Government Budget Surplus: Canada and the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1033-45, November.
- Campbell, John Y & Shiller, Robert J, 1987.
"Cointegration and Tests of Present Value Models,"
Journal of Political Economy,
University of Chicago Press, vol. 95(5), pages 1062-88, October.
- John Y. Campbell & Robert J. Shiller, 1988. "Cointegration and Tests of Present Value Models," NBER Working Papers 1885, National Bureau of Economic Research, Inc.
- Campbell, John & Shiller, Robert, 1987. "Cointegration and Tests of Present Value Models," Scholarly Articles 3122490, Harvard University Department of Economics.
- John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," Cowles Foundation Discussion Papers 785, Cowles Foundation for Research in Economics, Yale University.
- Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
- Barro, Robert J, 1979.
"On the Determination of the Public Debt,"
Journal of Political Economy,
University of Chicago Press, vol. 87(5), pages 940-71, October.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
- 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.
- Cashin, P. & Olekalns, N. & Sahay, R., 1998. "Tax Smoothing in a Financially Repessed Economy: Evidence from India," Department of Economics - Working Papers Series 656, The University of Melbourne.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- John Y. Campbell, 1988.
"Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis,"
NBER Working Papers
1805, National Bureau of Economic Research, Inc.
- Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-73, November.
- Gregory, Allan W & Veall, Michael R, 1985. "Formulating Wald Tests of Nonlinear Restrictions," Econometrica, Econometric Society, vol. 53(6), pages 1465-68, November.
- 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.
- International Monetary Fund, 1999. "Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia," IMF Working Papers 99/63, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson).
If references are entirely missing, you can add them using this form.