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Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia

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  • International Monetary Fund

Abstract

This paper tests a version of Barro’s tax-smoothing model, which assumes intertemporal optimization by a government seeking to minimize the distortionary costs of taxation, using Pakistan and Sri Lankan data for 1956-95 and 1964-97, respectively. The empirical results indicate that Pakistan’s fiscal behavior is consistent with tax smoothing, but not Sri Lanka’s. Moreover, fiscal behavior in both countries was dominated by a stagnation of revenues, large tax-tilting-induced deficits, and the consequent accumulation of excessive public liabilities. Analysis of the time-series characteristics of tax-tilting behavior indicates that for both countries the stock of public liabilities is unsustainable under unchanged fiscal policies.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/63.

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Length: 34
Date of creation: 01 May 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/63

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Cited by:
  1. Johan Adler, 2006. "The Tax-smoothing Hypothesis: Evidence from Sweden, 1952-1999," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 108(1), pages 81-95, 03.
  2. Angyridis, Constantine, 2009. "Balanced budget vs. Tax smoothing in a small open economy: A welfare comparison," Journal of Macroeconomics, Elsevier, Elsevier, vol. 31(3), pages 438-463, September.
  3. Gerhard Reitschuler, 2011. "Optimal taxation and budget deficits: Evidence for the EU's New Member States," Economics Bulletin, AccessEcon, vol. 31(3), pages 2593-2602.
  4. Adler, Johan, 2003. "Has Sweden’s government budget policy been too discretionary? Evidence from a generalization of the tax smoothing hypothesis," Working Papers in Economics, University of Gothenburg, Department of Economics 89, University of Gothenburg, Department of Economics.
  5. Taner Turan & Mesut Karakas & Halit Yanikkaya, 2014. "Tax Smoothing Hypothesis: A Turkish Case," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(4), pages 487-501, September.

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