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Article: Intertemporal tax-smoothing and the government budget surplus: Canada and the United States.
- Article from:
- Journal of Money, Credit & Banking
- Article date:
- November 1, 1995
- Author:
CopyrightCOPYRIGHT 1995 Ohio State University Press. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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AMIDST THE CHAOS that surrounds the budget-making process in most countries, it is often hard to believe that there is any rationale at all to the time pattern of budget deficits and taxes. Yet, under the plausible assumption that the distortionary effects of tax policies become more severe the higher the tax rate, economists can derive testable implications about the dynamic path of an optimal fiscal policy. In a seminal paper, Barro (1979) proposed a simple theory of tax smoothing: the government should spread the burden of raising taxes across time periods in order to minimize their burden.(1) This has important implications for the pattern of budget deficits: when faced ...
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... ... taxes than is implied by tax smoothing. The second reason is the ... hawks for the path of the budget surplus. The authors show that unlike in the standard tax smoothing case the budget surplus depends not just on the present ...
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