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Fiscal policy and financial market movements

  • Tagkalakis, Athanasios

This paper estimates fiscal policy reaction function in order to investigate the links between financial 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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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 1 (January)
Pages: 231-251

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:1:p:231-251
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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