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Fiscal adjustments and asset price changes

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  • Tagkalakis, Athanasios

Abstract

This paper examines the links between asset price movements and fiscal adjustments. Our findings suggest that higher asset prices improve fiscal balances and contribute to sustained consolidation. This refers in particular to real equity and real residential property prices. We find evidence that revenue windfalls due to higher residential, commercial property and equity prices can be sustained, thus, improving revenue and primary balances. There is evidence of a positive association of some asset prices changes with expenditure adjustments. Fiscal adjustments and in particular sharp spending cuts are more likely to be successful if undertaken in periods of dire budgetary and economic conditions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 2 (June)
Pages: 206-223

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:2:p:206-223

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Asset prices Fiscal adjustments Primary balance Revenue Expenditure;

References

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  1. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
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  7. Richard Morris & Ludger Schuknecht, 2007. "Structural balances and revenue windfalls - the role of asset prices revisited," Working Paper Series 737, European Central Bank.
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  10. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When?The Political Economy of Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1.
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  14. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who adjusts and when? On the political economy of reforms," Harvard Institute of Economic Research Working Papers 2108, Harvard - Institute of Economic Research.
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  16. Athanasios Tagkalakis, 2009. "Fiscal adjustments: do labor and product market institutions matter?," Public Choice, Springer, vol. 139(3), pages 389-411, June.
  17. Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, vol. 48(5), pages 1047-1074, October.
  18. Luisa Lambertini & José A. Tavares, 2005. "Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for the EMU," The B.E. Journal of Macroeconomics, De Gruyter, vol. 0(1), pages 11.
  19. Ricardo M. Sousa & António Afonso, 2008. "The Macroeconomic Effects of Fiscal Policy," NIPE Working Papers 22/2008, NIPE - Universidade do Minho.
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  21. Luca Agnello & Ludger Schuknecht, 2009. "Booms and busts in housing markets - determinants and implications," Working Paper Series 1071, European Central Bank.
  22. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
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  24. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  25. von Hagen, Jurgen & Strauch, Rolf R, 2001. " Fiscal Consolidations: Quality, Economic Conditions, and Success," Public Choice, Springer, vol. 109(3-4), pages 327-46, December.
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Citations

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Cited by:
  1. Athanasios Tagkalakis, 2012. "Fiscal policy and asset price volatility," Empirica, Springer, vol. 39(1), pages 123-156, February.
  2. Luca Agnello & Gilles Dufrénot & Ricardo M. Sousa, 2012. "Adjusting the U.S. Fiscal Policy for Asset Prices: Evidence from a TVP-MS Framework," NIPE Working Papers 20/2012, NIPE - Universidade do Minho.
  3. Tagkalakis, Athanasios, 2011. "Asset price volatility and government revenue," Economic Modelling, Elsevier, vol. 28(6), pages 2532-2543.

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