Seigniorage and tax smoothing in the United States 1914–1986

The quest for a fiscal rule: Italy, 1861–1998

“…For the periods 1960-1981and 1890-1986Hamilton and Flavin (1987 and Trehan and Walsh (1990), respectively, found that US data were consistent with the IGBC. However, the first period is too short to obtain reliable results when testing for cointegration.…”

“…McCallum (1984) argued that a constant, positive deficit (excluding interest payments) could not be financed entirely by bond sales; however, a constant positive deficit inclusive of interest payments can. Although most studies take this approach, Trehan and Walsh (1990) show that the IGBC implies that government expenditure inclusive of interest, tax receipts and seigniorage be cointegrated. However, the condition is in fact stronger, requiring that the deficit inclusive of interest be stationary.…”

“…In particular, we consider the issue of the inter-temporal government budget constraint that has been extensively analysed in a stochastic environment via the unit root and cointegration approach (Hamilton and Flavin 1987;Trehan and Walsh 1990;Bohn 1998). In our approach, for processes that are stationary about non-linear deterministic time trends (government spending and taxes), non-linear co-trending is the phenomenon whereby one or more linear combinations of the time series are stationary about a linear trend and a constant, and hence have common non-linear deterministic time trends (Bierens 2000).…”

Central Bank Independence, Inflation Variability, and the Revenue Smoothing Hypothesis

“…Trehan and Walsh [1990] extended Mankiw's work by explicitly testing for a unit root and conducting a cointegration test between inflation and the log of tax rates using U.S. data. They were unable to reject the null hypothesis that no cointegration existed between the inflation and direct tax rates, but confirmed a short run positive relationship between the two series.…”

Model Uncertainty and Intertemporal Tax Smoothing

“…5 Adler (2006) tested the TSH using the Swedish central government data and found that it is not possible to statistically reject the TSH for the full period 1952−1999, but the TSH is rejected using the sub-sample period from 1970 − 1996. 1 The tax-smoothing model is widely used in the literature to address various fiscal policy issues; see Sahasakul (1986), Bohn (1990), Trehan and Walsh (1990), Ghosh (1995), Angeletos (2002), Lloyd-Ellis, Zhan, and Zhu (2002), Aiyagari et al (2002), and Werning (2006). For the tax-smoothing setting with state-contingent debt, see Lucas and Stokey (1983), and Karantounias (2013).…”