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Tax Smoothing in a Financially Repressed Economy: Evidence from India

  • Paul Cashin
  • Nilss Olekalns
  • Ratna Sahay

India has a long history of running fiscal deficits. Two broad considerations motivate a government to run a deficit: tax smoothing and tax tilting. This paper tests a version of Barro’s tax-smoothing model, using Indian data for the period 1951-52 to 1996-97. The empirical results indicate that the central government of India has tax-smoothed, while the regional governments of India have not. The paper also finds evidence of tax tilting, reflected in financial repression, which has led to the accumulation of excessive public liabilities.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/122.

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Length: 43
Date of creation: 01 Aug 1998
Date of revision:
Handle: RePEc:imf:imfwpa:98/122
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