Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia
Paul Anthony Cashin
International Monetary Fund (IMF)
Nadeem Ul Haque
Pakistan Institute of Development Economics
University of Melbourne - Department of Economics
IMF Working Paper No. 99/63
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 1956-95 and 1964-97, respectively. The empirical results indicate that Pakistan`s fiscal behavior is consistent with tax smoothing, but not Sri Lanka`s. 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 behavior indicates that for both countries the stock of public liabilities is unsustainable under unchanged fiscal policies.
Number of Pages in PDF File: 34
Keywords: Tax smoothing, tax tilting, fiscal sustainability, Pakistan, Sri Lanka
JEL Classification: E6, H21, H62, O23working papers series
Date posted: February 13, 2006
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.485 seconds