Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia

May 1, 1999

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Spend Now, Pay Later? Tax Smoothing and Fiscal Sustainability in South Asia, (USA: International Monetary Fund, 1999) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: Budget planning and preparation, Expenditure, Financial institutions, Fiscal policy, Government debt management, Public financial management (PFM), Stocks

Keywords: Budget imbalance, Budget planning and preparation, Budget surplus, Fiscal sustainability, Government debt management, Government spending, Pakistan, South Asia, Sri Lanka, Stocks, Tax smoothing, Tax tilting, Tax-smoothing hypothesis, Tax-Smoothing hypothesis, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1999/063
Stock No:

WPIEA0631999
ISBN:

9781451848403
ISSN:

1018-5941

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