Profesores Escuela de Gobierno y Transformación Pública

Dr. Edgar Luna "Does the tax smoothing hypotesis hold?"

 

Abstract:

 

The "tax smoothing" idea proposed by Barro (1979) argues that unexpected increases in government spending leads to higher tax rates. This paper examines the behavior of the average tax rates following the present value of government war spending changes suggested by Ramey (2009) in order to test whether the \tax smoothing" hypothesis holds. The point estimates suggest that a spending increase of 1 percent of GDP increases the average tax rate 0.4 percent after the 12th quarter. My findings also provide strong evidence of the importance of expectations during the tax decision process. In line with previous studies, I estimate a VAR model using current defense spending and find no evidence of the "tax smoothing" hypothesis. This finding contrasts with the ones using shocks that incorporate expectations. In fact, I find no support of the "tax smoothing" hypothesis delaying the news spending shocks which implies that the shocks using current spending were already anticipated. My results show to be robust using diferent data samples, explanatory variables, additional lags, among others.

 

Fecha: 11/03/2015

Lugar: Escuela de Gobierno y Transformación Pública Campus Mty, Salón 204.

Horario: 12:00 a 14:00

Público: Abierto