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Fiscal Policies and the Stock Market: International Dimensions

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  • Assaf Razin

Abstract

The dynamic effects of fiscal policies on the real equilibrium have been the subject of a large body of recent research, emphasizing the intertemporal dimensions of tax and spending policies both in closed and open-economy contexts. The analysis in this paper extends the intertemporal analysis which was conducted under full certainty to uncertain environments. Specifically the paper uses a two-country stochastic general- equilibrium model of the world economy to address issues concerning the effects of government tax and spending policies on private sector consumption asset portfolios and stock market valuations. The key result of the paper is that the consequences of expected future policies and the characteristics of their international transmission depend critically on the precise variability of these policies across states of nature. The effects of current policies on consumption savings and stock market prices are shown, however to conform closely to the predictions of the corresponding certainty intertemporal model.

Suggested Citation

  • Assaf Razin, 1987. "Fiscal Policies and the Stock Market: International Dimensions," NBER Working Papers 2389, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2389
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    References listed on IDEAS

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    1. Mankiw, N Gregory, 1987. "Government Purchases and Real Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 407-419, April.
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    3. Buiter, Willem H, 1988. "Structural and Stabilization Aspects of Fiscal and Financial Policy in the Dependent Economy," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 220-245, June.
    4. Frenkel, Jacob A & Razin, Assaf, 1987. "Fiscal Policies and the World Economy; An Intertemporal Approach (Cambridge, Mass.: MIT Press, 1987)," MPRA Paper 20438, University Library of Munich, Germany.
    5. Helpman, Elhanan & Razin, Assaf, 1979. "A Theory of International Trade Under Uncertainty," Elsevier Monographs, Elsevier, edition 1, number 9780123396501 edited by Shell, Karl.
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