The Tax-smoothing Hypothesis: Evidence from Sweden, 1952-1999

This paper tests <link rid="b1">Barro's (1979)</link> tax-smoothing hypothesis using Swedish central government data for the period 1952-1999. According to the tax-smoothing hypothesis, the government sets the budget surplus equal to expected changes in government expenditure. When expenditure is expected to increase, the government runs a budget surplus, and when expenditure is expected to fall, the government runs a budget deficit. The empirical evidence suggests that the model provides a useful benchmark and that tax-smoothing behavior can explain about 60 percent of the variability in the Swedish central government budget surplus. Copyright The editors of the "Scandinavian Journal of Economics", 2006 .