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Testing For Tax Smoothing In A General Equilibrium Model Of Growth

  • Jim Malley
  • Apostolis Philippopoulos
  • George Economides

This paper constructs and formally tests a general equilibrium model of long-term growth and endogenous fiscal policy. In this model policymakers find it optimal to keep the income tax rate constant over time. Tax revenues finance public consumption and public production services, with the latter generating long-term growth. Surprisingly, despite its popularity amongst theorists, there have thus far been no formal econometric tests of this Barro-type general equilibrium model. We find that data from 22 OECD economies uniformly reject this model over the period 1960- 1996.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 1999_22.

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Date of creation: Nov 1999
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Handle: RePEc:gla:glaewp:1999_22
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