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Fiscal policy and financial market movements

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  • Athanasios Tagkalakis

    (Bank of Greece)

Abstract

This paper estimates a fiscal policy reaction function in order to investigate the links between financial and real estate market movements and fiscal policy outcomes. An increase in asset prices affects in a positive and significant manner primary balances, with the response reflecting both an increase in government revenues and a fall in government spending. The most important impact on fiscal balances is due to changes in residential property prices. Changes in equity and commercial property prices are also important determinants of fiscal balances. Our findings suggest that the steepening of the slope of the yield curve contributes to expenditure based fiscal discipline.

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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 116.

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Length: 92
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:bog:wpaper:116

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Web page: http://www.bankofgreece.gr
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Keywords: Asset prices; slope of the yield curve; fiscal policy; reaction functions;

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Citations

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Cited by:
  1. Alexander Zimper, 2013. "The minimal confidence levels of Basel capital regulation," Working Papers 201305, University of Pretoria, Department of Economics.
  2. Athanasios O. Tagkalakis, 2014. "Financial stability indicators and public debt developments," Working Papers 179, Bank of Greece.
  3. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2012. "How does fiscal policy react to wealth composition and asset prices?," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 874-890.
  4. Agnello, Luca & Dufrénot, Gilles & Sousa, Ricardo M., 2013. "Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices," Economic Modelling, Elsevier, vol. 34(C), pages 25-36.
  5. Athanasios Tagkalakis, 2012. "The effects of financial crisis on fiscal positions," Working Papers 145, Bank of Greece.
  6. Tagkalakis, Athanasios, 2011. "Fiscal adjustments and asset price changes," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 206-223, June.
  7. Weonho Yang & Jan Fidrmuc & Sugata Ghosh, 2013. "Macroeconomic Effects of Fiscal Adjustment: A Tale of two Approaches," CESifo Working Paper Series 4401, CESifo Group Munich.
  8. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  9. Athanasios Tagkalakis, 2012. "Fiscal policy and asset price volatility," Empirica, Springer, vol. 39(1), pages 123-156, February.
  10. Tagkalakis, Athanasios, 2011. "Asset price volatility and government revenue," Economic Modelling, Elsevier, vol. 28(6), pages 2532-2543.
  11. Athanasios O. Tagkalakis, 2013. "Discretionary fiscal policy and economic activity in Greece," Working Papers 169, Bank of Greece.
  12. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2013. "A Time-Varying Approach to Analysing Fiscal Policy and Asset Prices in South Africa," Working Papers 201303, University of Pretoria, Department of Economics.
  13. 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.

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