2014
DOI: 10.1016/j.jedc.2014.06.004
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Model uncertainty and intertemporal tax smoothing

Abstract: In this paper we examine how model uncertainty due to the preference for robustness (RB) affects optimal taxation and the evolution of debt in the Barro tax-smoothing model (1979). We first study how the government spending shocks are absorbed in the short run by varying taxes or through debt under RB. Furthermore, we show that introducing RB improves the model's predictions by generating (i) the observed relative volatility of the changes in tax rates to government spending, (ii) the observed comovement betwe… Show more

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Cited by 8 publications
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“…Orlik and Presno (2018) follow the type 0 ambiguity assumptions of Karantounias (2013) and deviate from the commitment assumption by using the notion of sustainable plans. Luo et al (2014) use a standard ad hoc tax-smoothing model where the policymaker has model uncertainty, and abstract from the general equilibrium determination of the price of government debt.…”
Section: Related Literaturementioning
confidence: 99%
“…Orlik and Presno (2018) follow the type 0 ambiguity assumptions of Karantounias (2013) and deviate from the commitment assumption by using the notion of sustainable plans. Luo et al (2014) use a standard ad hoc tax-smoothing model where the policymaker has model uncertainty, and abstract from the general equilibrium determination of the price of government debt.…”
Section: Related Literaturementioning
confidence: 99%