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Australian Evidence on Tax Smoothing and the Optimal Budget Surplus *
Author(s) -
OLEKALNS NILSS
Publication year - 1997
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1997.tb00998.x
Subject(s) - economics , smoothing , government expenditure , government (linguistics) , econometrics , economic surplus , government spending , microeconomics , monetary economics , public economics , macroeconomics , welfare , public finance , mathematics , market economy , linguistics , statistics , philosophy
This paper tests a version of Barro's tax smoothing hypothesis using Australian data for the period 1964*65 to 1994/95. The model assumes intertemporal optimization by a government seeking to minimize the distortionary effects of tax collection. The model predicts that the budget surplus is stationary, even if government expenditure and tax collections are nonstationary. In addition, the surplus should be a linear function of expected future changes to government expenditure. The results indicate that Australian fiscal policy has been too volatile to be consistent with optimal tax smoothing.