Ken Judd blogs about my 1995 paper with Nick Rowe
Nick and I argued that Barro's 1979 tax smoothing result is due to his quadratic loss function. We identified what we dubbed a "precautionary taxation" motive when there's a Laffer curve in taxation.
Chuffed beyond words that the great mathematical economist Ken Judd at Stanford just blogged about a 1995 paper by Nick Rowe and myself, in which we argue that Barro's famous tax smoothing proposition (1979) arises because of his assumption of a quadratic loss function. With a Laffer curve in taxation, that implies an upper limit to taxing capacity, we showed that Barro's own framework implies a precauationary taxation motive, so that government should build up a "war chest" to guard against unexpected increases in expenditure.
Here’s Ken’s blog post.
Here’s our paper.