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Asset price volatility and government revenue

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  • Athanasios Tagkalakis

    ()
    (Bank of Greece)

Abstract

This paper investigates the effect of commercial, residential property and equity price volatility on the variability of cyclically adjusted government revenue. We find significant evidence that asset price volatility increases the variability of government revenue. A 1 percent increase in equity price volatility increases government revenue variability by 0.37-0.44 percent. An increase in residential property price volatility increases revenue volatility by about 0.15-0.22 percent, whereas this effect diminishes to 0.11 percent in case of commercial property price. This evidence reflects the automatic increase of government revenue variability due to asset price movements and supports arguments in favour of adjusting fiscal variables for both business cycle and asset price changes. However, we also find evidence that equity price variability increases revenue variability even when government revenue is adjusted for both economic and asset price cycles, indicating the presence of more complicated dynamics between fiscal variables and asset price changes.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2011133.pdf
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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 133.

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Length: 40
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:bog:wpaper:133

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Web page: http://www.bankofgreece.gr
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Keywords: Asset prices; government revenue; volatility; cyclical adjustment.;

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  16. repec:fth:eeccco:148 is not listed on IDEAS
  17. Roberto Golinelli & Sandro Momigliano, 2009. "The Cyclical Reaction of Fiscal Policies in the Euro Area: The Role of Modelling Choices and Data Vintages," Fiscal Studies, Institute for Fiscal Studies, vol. 30(1), pages 39-72, 03.
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