Beyond Tax Smoothing

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Beyond Tax Smoothing.pdf (210.71 KB)
Authors
Berck, Peter
Lipow, Jonathan
Subjects
tax smoothing
capital structure
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Date of Issue
2011-03-09
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Abstract
Analyses of optimal government capital structure generally follow Bohn (1990) and Barro (1995) in assuming risk neutrality or an exogenous risk premium. These analyses usually conclude that the optimal government capital structure stabilizes tax rates over time and states of nature to the greatest extent possible, something known as "tax smoothing." In this paper, we show that when an endogenous risk premium is introduced, the optimal government capital structure will no longer smooth tax rates. Under likely conditions, the optimal structure requires a larger short position in risky assets than that implied by tax smoothing
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https://hdl.handle.net/10945/44944
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Defense Resources Management Institute (DRMI)
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.
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