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Fiscal policy and financial market movements

  • Athanasios Tagkalakis

    (Bank of Greece)

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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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
Contact details of provider: Web page: http://www.bankofgreece.gr

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  15. Cândida Ferreira, 2009. "Fiscal Behaviour in the European Union: Rules, Fiscal Decentralization and Government Indebtedness," Working Papers Department of Economics 2009/23, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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  19. Eschenbach, Felix & Schuknecht, Ludger, 2002. "Asset prices and fiscal balances," Working Paper Series 0141, European Central Bank.
  20. Morris, Richard & Schuknecht, Ludger, 2007. "Structural balances and revenue windfalls: the role of asset prices revisited," Working Paper Series 0737, European Central Bank.
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  22. Honohan, Patrick & Klingebiel, Daniela, 2003. "The fiscal cost implications of an accommodating approach to banking crises," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1539-1560, August.
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  24. Gimeno, Ricardo & Martí­nez-Carrascal, Carmen, 2010. "The relationship between house prices and house purchase loans: The Spanish case," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1849-1855, August.
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  30. Oya Celasun & Joong Shik Kang, 2006. "On the Properties of Various Estimators for Fiscal Reaction Functions," IMF Working Papers 06/182, International Monetary Fund.
  31. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
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