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Testing the Tax Smoothing Hypothesis of Fiscal Policy: Some Evidence from Italy

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  • Barisone, G.M.

Abstract

This paper tests Barro's (1979) tax smoothing model of fiscal policy. The model implies that budget deficits and surpluses are used optimally to minimise the distortionary effects of taxation, given a certain path of spending. The theory has a number of implications both for the statistical time series properties of government budget data and for causality amongst these variables. These implications are derived and tested on a vector autoregression model using annual data for Italy covering the period for the full sample. However, when we consider the post World War II period all of the tests clearly reject the tax smoothing hypothesis.

Suggested Citation

  • Barisone, G.M., 1998. "Testing the Tax Smoothing Hypothesis of Fiscal Policy: Some Evidence from Italy," Discussion Papers 9813, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:9813
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    Keywords

    FISCAL POLICY ; TAXES;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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