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Dynamics between stock market movements and fiscal policy: empirical evidence from emerging Asian economics

Author

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  • Duy-Tung Bui

    (School of Public Finance - University of Economics Ho Chi Minh City, LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE])

  • Matthieu Llorca

    (LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique)

  • Thi Mai

    (School of Public Finance - University of Economics Ho Chi Minh City)

Abstract

Pro-cyclical fiscal policy has raised concern in many emerging economies due to its adverse consequences to the economic activities. This paper takes a different approach to the issue, which aims to examine the bidirectional relationships between fiscal policy and stock market activities, using a panel of 12 emerging Asia-Pacific economies from 1990 to 2015. We estimate a variety of Panel Vector Autoregressive models to test for the consistence of the results. The empirical results show that fiscal policies in these countries tend to a pro-cyclical path in responding to stock market movements. The pro-cyclical behavior is found with both government expenditure and government revenue. On the other hand, a fiscal consolidation attempt has a rewarding effect on stock prices.

Suggested Citation

  • Duy-Tung Bui & Matthieu Llorca & Thi Mai, 2018. "Dynamics between stock market movements and fiscal policy: empirical evidence from emerging Asian economics," Post-Print hal-04704551, HAL.
    • Handle: RePEc:hal:journl:hal-04704551
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