Asset prices and fiscal balances
AbstractThe paper argues that there are important links between asset prices and public finances which can strongly affect the variability of fiscal balances. Asset prices affect fiscal balances via capital gains and turnover related taxes, and via wealth effects on consumption and indirect taxes. The fiscal costs of asset price changes can be higher if government can be held liable for balance sheet losses from an asset price downturn. An empirical study finds significant effects of house and/or stock prices on revenue in a majority of the 17 OECD countries and revenue categories examined. On average, a 10-percent change in real estate and stock prices has a similar effect on the fiscal balance as a 1-percent change in output, although effects differ considerably across countries. By 2001-2002, some countries' fiscal balances seem upward biased, due to positive effects from earlier asset price booms. JEL Classification: H3, H6, E6, G1
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0141.
Date of creation: May 2002
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Find related papers by JEL classification:
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H6 - Public Economics - - National Budget, Deficit, and Debt
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- G1 - Financial Economics - - General Financial Markets
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