On minimizing the welfare cost of fiscal policy: evidence from South Asia

On minimizing the welfare cost of fiscal policy: evidence from South Asia This study evaluates whether India, Pakistan, and Sri Lanka minimized the welfare cost of their fiscal policies? For this purpose it tests tax smoothing hypothesis and finds that there is a weak tax smoothing in Pakistan and Sri Lanka whilst fiscal policy in India has not been conducted in an optimal fashion in accordance with the predictions of the hypothesis. The difference in results is due to difference in budget deficits as the deficits of Pakistan and Sri Lanka are higher as compare to India so they are careful to reduce volatility in budget deficits by trying to keep close correspondence between taxes and expenditures while India, with comparatively less deficit, was more careful regarding its debt. Therefore, to minimize the cost a close correspondence between permanent expenditure and taxes are required. In this context the best policy option would be an initiation of prompt action program of tax base expansions and expenditure rationalization. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Quality & Quantity Springer Journals

On minimizing the welfare cost of fiscal policy: evidence from South Asia

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Publisher
Springer Netherlands
Copyright
Copyright © 2013 by Springer Science+Business Media Dordrecht
Subject
Social Sciences, general; Methodology of the Social Sciences; Social Sciences, general
ISSN
0033-5177
eISSN
1573-7845
D.O.I.
10.1007/s11135-013-9852-2
Publisher site
See Article on Publisher Site

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