Intertemporal Tax-Smoothing and the Government Budget Surplus: Canada and the United States
This paper shows that, if the government smooths taxes, then the budget surplus should equal the present discounted value of expected changes in government expenditure. This implication of the tax-smoothing hypothesis imposes more stringent restrictions on the data than the more usual method of testing whether changes in tax rates follow a random walk. The tax-smoothing model is applied to the federal government budgets of Canada and the United States and, in each case, receives considerable empirical support. Copyright 1995 by Ohio State University Press.
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Volume (Year): 27 (1995)
Issue (Month): 4 (November)
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References listed on IDEAS
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- Bharat Trehan & Carl E. Walsh, 1987.
"Common trends, the government's budget constraint, and revenue smoothing,"
Working Papers in Applied Economic Theory
87-11, Federal Reserve Bank of San Francisco.
- Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
- V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1991.
"Optimal fiscal and monetary policy: some recent results,"
147, Federal Reserve Bank of Minneapolis.
- V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1991. "Optimal fiscal and monetary policy: some recent results," Proceedings, Federal Reserve Bank of Cleveland, pages 519-546.
- Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1991. "Optimal Fiscal and Monetary Policy: Some Recent Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 519-539, August.
- Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-1230, December.
- 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.
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