Publication: Intertemporal Excess Burden, Bequest Motives, and the Budget Deficit
Date
2003-06
ISSN
Published
2003-06
Author(s)
Chen, Derek Hung Chiat
Abstract
The author aims to empirically determine
the significant factors that affect the levels of budget
deficits of central governments across time and across
countries. He empirically tests two prominent theories of
budget deficits-the Barro (1979) tax-smoothing approach, and
the still-untested theory of negative bequest motives
advocated by Cukierman and Meltzer (1989). The author uses
econometric techniques including fixed-effects (both country
and time) panel regressions spanning 87 countries over the
period 1975 to 1992, and the Griliches treatment of missing
data. The author finds relatively stronger statistical
support for the tax-smoothing approach among developing
countries but not in industrial countries. The existence of
empirical evidence supporting the theory of negative bequest
motives is indeterminate. The author also conducted
post-regression analyses to assess the proportion of
observed differences in budget deficits the factors were
actually able to explain. These reveal that both theories
are generally weak in accounting for inter-temporal changes
in budget deficit shares for both industrial and developing
countries. The theories performed significantly better in
accounting for cross-section differences. The author has
many contributions to the literature. First, he analyzes the
question of what determines the size of central government
budget deficits using cross-country time series data leading
into the 1990s. Second, he provides empirical tests of the
still-untested Cukierman-Meltzer (1989) negative bequest
motive theory of budget deficits. By using the panel data,
the author attempts to determine the factors that influence
not only the inter-temporal differences in budget deficits
but also those factors that lead to cross-country
differences. Last but not least, he provides some
preliminary evidence that poverty reduction is necessary for
long-term government budget deficit reduction.
Link to Data Set
Citation
“Chen, Derek Hung Chiat. 2003. Intertemporal Excess Burden, Bequest Motives, and the Budget Deficit. Policy Research Workding Paper;No. 3086. © World Bank, Washington, DC. http://hdl.handle.net/10986/18179 License: CC BY 3.0 IGO.”
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