Does the Chilean government smooth taxes? A tax-smoothing model with revenue collection from a natural resource

Abstract

his article uses a present value test to examine whether the Chilean government has smoothed taxes optimally since 1973. An important portion of the Chilean government's revenue is the result of royalties it earns from the extraction of copper. An appropriate test for tax-smoothing therefore must recognize that this part of the government's revenue is not completely under its control. The results provide strong evidence for tax smoothing when royalties from copper are treated as not being under government control, but only weak evidence if they are treated as if they are under government control.