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Tax Smoothing in a Financially Repessed Economy: Evidence from India

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

No 656, Department of Economics - Working Papers Series from The University of Melbourne

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 1966-97. 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 fiancial repression, which has led to the accumulation of excessive public liabilities.

Keywords: FISCAL POLICY; TAXES (search for similar items in EconPapers)
JEL-codes: E60 H21 H62 (search for similar items in EconPapers)
Date: 1998
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