TY  - JOUR
AU  - Bizer,David S.
AU  - Durlauf,Steven N.
TI  - Testing the Positive Theory of Government Finance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3349
PY  - 1990
Y2  - May 1990
UR  - http://www.nber.org/papers/w3349
L1  - http://www.nber.org/papers/w3349.pdf
N1  - Author contact info:
Steven N. Durlauf
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/263-3859
Fax: 608/262-2033
E-Mail: sdurlauf@ssc.wisc.edu
AB  - Researchers characterizing optimal tax policies for dynamic economies have reasoned that optimally chosen tax rates should approximately follow a random walk. We conduct a frequency-domain examination of the properties of the tax rate series and conclude that while there is a substantial smoothing role for debt, one rejects the hypothesis that the first difference in the series is white noise. This conclusion follows both from an analysis of the entire spectral distribution function of tax changes as well as from the behavior of individual frequencies. The source of the rejection is pronounced activity of tax changes at an eight year cycle which is suggestive of an electoral component to tax changes.  Regression analysis confirms the finding that there is a cyclical component to tax changes corresponding to changes in political party administration. The results suggest that the positive theory of government finance needs to be refined to incorporate features of political equilibrium. 
ER  -