Deficits, government expenditures, and tax smoothing in the United States: 1929–1988

Model Uncertainty and Intertemporal Tax Smoothing

“…In addition to improving the basic model's ability to match the unconditional moments of fiscal policy, we are also able to show that the RB model improves the match of conditional moments; specifically, the RB model can pass the bivariate VAR test used in Huang and Lin (1993), Ghosh (1995), Adler (2006), and others, provided the desire for robustness is strong enough. We discipline this desire using detection error probabilities, as advocated by Hansen and Sargent (2007) and used in Luo, Nie, and Young (2012); the result is that the model passes the VAR test for reasonable error probabilities using the 1960 − 2007 U.S. data.…”

Singapore's recurrent budget surplus: The role of conservative growth forecasts

“…Bohn (1998) used Barro's (1986) formulation to examine the response of primary budget surplus to debt-income ratio. Studies such as Cashin, Haque, and Olekalns (2002), Fisher and Kingston (2005), Ghosh (1995), Huang and Lin (1993), Kula (2004), Olekalns (1997), Serletis and Schorn (1999) examine whether the fiscal deficit is informative of future changes in government expenditures.…”

Model uncertainty and intertemporal tax smoothing

“…Specifically, following Barro (1979), Roubini (1988), Bohn (1990), Ghosh (1995), and Lloyd-Ellis, Zhan, and Zhu (2005), we assume that the excess burden of taxation is summarized by a quadratic loss function c (τ t ) = 1 2 (τ t + ϕ) 2 , which measures the value of real income "wasted" when taxes are τ t . 13 The optimization problem of the government can thus be 13 Following Barro (1979), Sargent (1987), Bohn (1989), and Huang and Lin (1993), the value of the parameter, ϕ, in the loss function is set such that the loss function has the standard properties of c (τ ) > 0 and c (τ ) > 0. Note that the value of ϕ does not affect the stochastic proprties of the joint behavior of the three key fiscal variables.…”