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Title: Singapore's recurrent budget surplus: The role of conservative growth forecasts
Authors: Abeysinghe, T. 
Jayawickrama, A. 
Keywords: GDP forecast errors
Reported and adjusted budget surplus
Tax smoothing model
Issue Date: 2008
Citation: Abeysinghe, T., Jayawickrama, A. (2008). Singapore's recurrent budget surplus: The role of conservative growth forecasts. Journal of Asian Economics 19 (2) : 117-124. ScholarBank@NUS Repository.
Abstract: Aided by strong economic growth the Singapore government has been able to keep both the tax rate and the government expenditure rate low and yet generate healthy budget surpluses year after year. Although the gap between the tax rate and the government expenditure rate is the obvious source of the surplus, this paper shows the presence of another subtle source, a surplus generated by conservative growth forecasts that lay the base for revenue projections. An omitted variable bias in a model based on the tax smoothing hypothesis led us to consider the role played by the growth forecast error in predicting the budget surplus. Our computations show that on average the under-prediction of the tax base (GDP) must have contributed about S$ 376 million (or about 13%) per year to the realized budget surplus over the period 1990-2005. This appears to be simply a by-product of the Government's philosophy of "fiscal prudence".©2008 Elsevier Inc. All rights reserved.
Source Title: Journal of Asian Economics
ISSN: 10490078
DOI: 10.1016/j.asieco.2008.01.001
Appears in Collections:Staff Publications

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