TAX SMOOTHING: TESTS ON INDONESIAN DATA

Yıl 2011, Cilt: 3 Sayı: 1, 187 - 197, 01.06.2011

Rudi Kurniawan

https://izlik.org/JA55NW95CD

Öz

This paper contributes to the literature of public debt management by testing for tax smoothing behaviour in Indonesia. Tax smoothing means that the government smooths the tax rate across all future time periods to minimize the distortionary costs of taxation over time for a given path of government spending. In a stochastic economy with an incomplete bond market, tax smoothing implies that the tax rate approximates a random walk and changes in the tax rate are nearly unpredictable. For that purpose, two tests were performed. First, random walk behaviour of the tax rate was examined by undertaking unit root tests. The null hypothesis of unit root cannot be rejected, indicating that the tax rate is nonstationary and, hence, it follows a random walk. Second, the predictability of the tax rate was examined by regressing changes in the tax rate on its own lagged values and also on lagged values of changes in the goverment expenditure ratio, and growth of real output. They are found to be not significant in predicting changes in the tax rate. Taken together, the present evidence seems to be consistent with the tax smoothing, therefore provides support to this theory

Anahtar Kelimeler

Tax smoothing , tax rate , public debt management , Indonesia

Kaynakça

• Barro, R. J. (1979). On the determination of the public debt, Journal of Political Economy 87(5): 940-971.
• Barro, R. J. (1981), On the predictability of tax-rate changes, NBER Working
• Paper 636; reprinted in Barro, R. (1990), Macroeconomic policy, Harvard
• University Press, Cambridge, MA. Ghosh, A. R. (1995), Intertemporal tax-smoothing and the government budget surplus: Canada and the United States, Journal of Money, Credit, and Banking 27, —1045.
• Huang, C.-H. and K. S. Lin (1993), Deficits, government expenditure, and tax smoothing in the United States: 1929—1998, Journal of Monetary Economics 31, —339.
• Kingston, G. H. and A. P. Layton (1986). Tax smoothing and Australian fiscal policy. Research paper (Macquarie University. School of Economic and FinancialStudies), no. 308.
• Sahasakul, C. (1986), The U.S. evidence on optimal taxation over time, Journal of
• Monetary Economics 18, 251-75.