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Singapore’s Recurrent Budget Surplus The Role of Conservative Growth Forecasts

Author

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  • Tilak Abeysinghe

    () (Department of Economics, National University of Singapore)

  • Ananda Jayawickrama

    () (Department of Economics, National University of Singapore)

Abstract

Aided by strong economic growth the Singapore government has been able to keep both the tax rate and the government expenditure rate low and yet generate healthy budget surpluses year after year. Although the gap between the tax rate and the government expenditure rate is the obvious source of the surplus, this paper shows the presence of another subtle source, a surplus generated by conservative growth forecasts that lay the base for revenue projections. An omitted variable bias in a model based on the tax smoothing hypothesis led us to consider the role played by the growth forecast error in predicting the budget surplus. Our computations show that on average the underprediction of the tax base (GDP) must have contributed about $376 million per year to the realized budget surplus over the period 1990-2005. This appears to be simply a byproduct of the Government’s philosophy of “fiscal prudence”.

Suggested Citation

  • Tilak Abeysinghe & Ananda Jayawickrama, 2007. "Singapore’s Recurrent Budget Surplus The Role of Conservative Growth Forecasts," SCAPE Policy Research Working Paper Series 0704, National University of Singapore, Department of Economics, SCAPE.
  • Handle: RePEc:sca:scaewp:0704
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    File URL: http://www.fas.nus.edu.sg/ecs/pub/wp-scape/0704.pdf
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    References listed on IDEAS

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    1. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 949-963.
    2. Olekalns, Nilss, 1997. "Australian Evidence on Tax Smoothing and the Optimal Budget Surplus," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 248-257, September.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. 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.
    5. Cashin, Paul & Ul Haque, Nadeem & Olekalns, Nilss, 2003. "Tax smoothing, tax tilting and fiscal sustainability in Pakistan," Economic Modelling, Elsevier, vol. 20(1), pages 47-67, January.
    6. 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.
    7. Robert J. Barro, 1981. "On the Predictability of Tax-Rate Changes," NBER Working Papers 0636, National Bureau of Economic Research, Inc.
    8. Barro, Robert J, 1986. " U.S. Deficits since World War I," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 195-122.
    9. Ghosh, Atish R, 1995. "Intertemporal Tax-Smoothing and the Government Budget Surplus: Canada and the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1033-1045, November.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Le dollar Singapourien au plus haut face à l euro
      by Loïc Abadie in Contrepoints on 2012-04-23 17:00:00

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    Cited by:

    1. Tsuchiya, Yoichi, 2016. "Assessing macroeconomic forecasts for Japan under an asymmetric loss function," International Journal of Forecasting, Elsevier, vol. 32(2), pages 233-242.
    2. repec:ire:issued:v:20:n:04:2017:p:417-450 is not listed on IDEAS

    More about this item

    Keywords

    Tax smoothing model; Reported and adjusted budget surplus; GDP forecast errors.;

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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