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A note on testing for tax-smoothing in general equilibrium

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  • Jim Malley
  • Apostolis Philippopoulos

Abstract

Barro’s original partial equilibrium tax-smoothing model has generated a tremendous amount of empirical interest over the last several decades. However, to date, there has been no formal empirical testing of the more recent general equilibrium renditions of this model. Therefore, the purpose of this paper is to construct, and directly test, a general equilibrium model of optimal growth and endogenous fiscal policy in which policymakers find it optimal to keep the tax rate constant over time. In contrast to most of the evidence from partial equilibrium models, we find that data from 26 OECD economies uniformly reject the taxsmoothing hypothesis over the period 1960-1996.

Suggested Citation

  • Jim Malley & Apostolis Philippopoulos, 1999. "A note on testing for tax-smoothing in general equilibrium," Working Papers 1999_17, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:1999_17
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    References listed on IDEAS

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    1. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-550, June.
    2. Kollintzas, T. & Philippopoulos, A. & Vasillatos, V., 1999. "Is Tax Policy Coordination Necessary?," DEOS Working Papers 110, Athens University of Economics and Business.
    3. Jim Malley & Apostolis Philippopoulos, 1999. "Economic Growth And Endogenous Fiscal Policy: In Search Of A Data Consistent General Equilibrium Model," Working Papers 1999_18, Business School - Economics, University of Glasgow, revised Jan 1998.
    4. Benhabib, Jess & Velasco, Andres, 1996. "On the optimal and best sustainable taxes in an open economy," European Economic Review, Elsevier, vol. 40(1), pages 135-154, January.
    5. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1994. "Optimal Fiscal Policy in a Business Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 617-652, August.
    6. Ambler, Steve & Paquet, Alain, 1996. "Fiscal spending shocks, endogenous government spending, and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 237-256.
    7. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-450, June.
    8. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June.
    9. Serletis, Apostolos & Schorn, Richard G, 1999. "International Evidence on the Tax- and Revenue-Smoothing Hypotheses," Oxford Economic Papers, Oxford University Press, vol. 51(2), pages 387-396, April.
    10. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-334, June.
    11. Lockwood, Ben & Philippopoulos, Apostolis & Snell, Andy, 1996. "Fiscal Policy, Public Debt Stabilisation and Politics: Theory and UK Evidence," Economic Journal, Royal Economic Society, vol. 106(437), pages 894-911, July.
    12. Devereux, Michael B. & Wen, Jean-Francois, 1998. "Political instability, capital taxation, and growth," European Economic Review, Elsevier, vol. 42(9), pages 1635-1651, November.
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    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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