Optimal public deficit and tax-smoothing in the Spanish economy,1850-2022

Abstract

In this paper, we provide a formal test of Barro s tax-smoothing model, using Spanish data covering the period 1850 2022. First, we found that the tax-tilting component has been very important for the Spanish government and is a symptom of the existence of a public de cit bias that has existed in Spanish public nances over the sample period. Second, our empirical ndings do also support the existence of tax-smoothing in Spanish scal policy throughout the sample period. Consequently, there is some evidence that the Spanish economy has engaged in tax-smoothing behavior over the period analyzed, as the Spanish governments responded to expected future changes in government spending by running budget imbalances, rather than altering contemporaneous government revenues.