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The Tax‐smoothing Hypothesis: Evidence from Sweden, 1952–1999
Author(s) -
Adler Johan
Publication year - 2006
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2006.00442.x
Subject(s) - economics , government expenditure , government budget , smoothing , government (linguistics) , benchmark (surveying) , econometrics , government spending , macroeconomics , monetary economics , welfare , public finance , statistics , mathematics , market economy , linguistics , philosophy , geodesy , geography
This paper tests Barro's (1979) tax‐smoothing hypothesis using Swedish central government data for the period 1952–1999. According to the tax‐smoothing hypothesis, the government sets the budget surplus equal to expected changes in government expenditure. When expenditure is expected to increase, the government runs a budget surplus, and when expenditure is expected to fall, the government runs a budget deficit. The empirical evidence suggests that the model provides a useful benchmark and that tax‐smoothing behavior can explain about 60 percent of the variability in the Swedish central government budget surplus.