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

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

Author Info

Cashin, P.
Haque, N.
Olekalns, N.

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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 the periods 1956-95 and 1964-97, respectively. The empirical results indicate that Pakistan's fiscal behavior is consistent with tax smoothing, but Sri Lanka's is not. 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 behaviour indicates that for both countries the stock of public liabilities is unsustainable under unchanged fiscal policies.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 700.

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Length: 34 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:mlb:wpaper:700

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Find related papers by JEL classification:
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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