Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia
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Summary:
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.
Series:
Working Paper No. 1999/063
Subject:
Budget planning and preparation Expenditure Financial institutions Fiscal policy Government debt management Public financial management (PFM) Stocks
English
Publication Date:
May 1, 1999
ISBN/ISSN:
9781451848403/1018-5941
Stock No:
WPIEA0631999
Pages:
34
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