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


  • Johan Adler

    1. University of Gothenburg, SE-405 30 Gothenburg, Sweden
    Search for more papers by this author
    • * 

      I would like to thank two anonymous referees for very useful comments and suggestions. I am also grateful to Torben M. Andersen, Michael Bergman, Arne Bigsten, Henry Ohlsson, Dick Durevall and seminar participants at the University of Gothenburg for helpful comments on earlier versions of this paper.


This paper tests Barro's (1979) 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.