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Fiscal Policy and the Banking System in Italy. Have Taxes, Public Spending and Banks been Procyclical in the Long-Run?

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  • Giandomenico Piluso
  • Roberto Ricciuti

Abstract

This paper analyses the relations between the banking system fluctuations, on one hand, and taxation and public spending, on the other one, using a VECM methodology. We find some evidence of prociclicality of fiscal policy using variables such as government spending, taxes, and primary surplus. Effects in the opposite direction are much smaller. Results are quite stable over time.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-10/cesifo1_wp2442.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2442.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2442

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Keywords: credit cycles; fiscal policy; procyclicality;

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References

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  1. Rajan, Raghuram G, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 399-441, May.
  2. Bordo, Michael D. & Dueker, Michael J. & Wheelock, David C., 2003. "Aggregate price shocks and financial stability: the United Kingdom 1796-1999," Explorations in Economic History, Elsevier, Elsevier, vol. 40(2), pages 143-169, April.
  3. Mario Quagliariello, 2006. "BanksÂ’ Riskiness Over the Business Cicle: a Panel Analysis on Italian Intermediaries," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 599, Bank of Italy, Economic Research and International Relations Area.
  4. Ugo Albertazzi & Leonardo Gambacorta, 2006. "Bank profitability and the business cycle," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 601, Bank of Italy, Economic Research and International Relations Area.
  5. Charles Goodhart & Boris Hofmann & Miguel Segoviano, 2004. "Bank Regulation and Macroeconomic Fluctuations," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 20(4), pages 591-615, Winter.
  6. Edward I. Altman & Brooks Brady & Andrea Resti & Andrea Sironi, 2005. "The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 78(6), pages 2203-2228, November.
  7. Fenoaltea, Stefano, 2005. "The growth of the Italian economy, 1861 1913: Preliminary second-generation estimates," European Review of Economic History, Cambridge University Press, Cambridge University Press, vol. 9(03), pages 273-312, December.
  8. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers, C.V. Starr Center for Applied Economics, New York University 98-03, C.V. Starr Center for Applied Economics, New York University.
  9. Graciela Laura Kaminsky, 1999. "Currency and Banking Crises," IMF Working Papers 99/178, International Monetary Fund.
  10. Fratianni,Michele & Spinelli,Franco, 1997. "A Monetary History of Italy," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521443159.
  11. Bernauer Thomas & Koubi Vally, 2004. "Banking Crisis vs. Credit Crunch? A Cross-Country Comparison of Policy Responses to Dilemmas in Banking Regulation," Business and Politics, De Gruyter, De Gruyter, vol. 6(2), pages 1-24, August.
  12. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 979, Cowles Foundation for Research in Economics, Yale University.
  13. Carlo Brambilla & Giandomenico Piluso, 2007. "Are Banks Procyclical? Evidence from the Italian Case (1890-1973)," Department of Economics University of Siena, Department of Economics, University of Siena 523, Department of Economics, University of Siena.
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Cited by:
  1. Riccardo De Bonis & Massimiliano Stacchini, 2010. "What Determines the Size of Bank Loans in Industrialized Countries? The Role of Government Debt," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 39, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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