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

Author

Listed:
  • Cashin, P.
  • Haque, N.
  • Olekalns, N.

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.

Suggested Citation

  • Cashin, P. & Haque, N. & Olekalns, N., 1999. "Spend Now, Pay Later? Tax Smoothing & Fiscal Sustainability in South Asia," Department of Economics - Working Papers Series 700, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:700
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    References listed on IDEAS

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    1. Cashin, Paul & McDermott, C John, 1998. "Are Australia's Current Account Deficits Excessive?," The Economic Record, The Economic Society of Australia, vol. 74(227), pages 346-361, December.
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    5. Barro, Robert J, 1986. " U.S. Deficits since World War I," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 195-122.
    6. Paul Cashin & Nilss Olekalns & Ratna Sahay, 1998. "Tax Smoothing in a Financially Repressed Economy; Evidence from India," IMF Working Papers 98/122, International Monetary Fund.
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    Cited by:

    1. repec:ecr:col070:42015 is not listed on IDEAS
    2. Taner Turan & Mesut Karakas & Halit Yanikkaya, 2014. "Tax Smoothing Hypothesis: A Turkish Case," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(4), pages 487-501, September.
    3. Obeng, Samuel, 2015. "A Causality Test of the Revenue-Expenditure Nexus in Ghana," MPRA Paper 63735, University Library of Munich, Germany, revised 25 Feb 2015.

    More about this item

    Keywords

    TAXATION ; ECONOMIC DEVELOPMENT ; FISCAL POLICY;

    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, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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