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Tax Smoothing in a Financially Repressed Economy; Evidence from India

Paul Cashin (), Nilss Olekalns () and Ratna Sahay

No 98/122, IMF Working Papers from International Monetary Fund

Abstract: India has a long history of running fiscal deficits. Two broad considerations motivate a government to run a deficit: tax smoothing and tax tilting. This paper tests a version of Barro’s tax-smoothing model, using Indian data for the period 1951-52 to 1996-97. The empirical results indicate that the central government of India has tax-smoothed, while the regional governments of India have not. The paper also finds evidence of tax tilting, reflected in financial repression, which has led to the accumulation of excessive public liabilities.

Keywords: Fiscal policy; India; Tax smoothing, financial repression, budget surplus, government expenditure, fiscal deficits, budget constraint (search for similar items in EconPapers)
Date: 1998-08-01
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Working Paper: Tax Smoothing in a Financially Repessed Economy: Evidence from India (1998)
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