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Adjusting Fiscal Balances for Asset Price Cycles

  • Robert W.R. Price
  • Thai-Thanh Dang
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    This paper develops a method for adjusting structural budget balances for asset price cycles and presents estimates of structural budget balances corrected for house-price and equity-price cycles for OECD countries. The traditional cyclically adjusted budget balance indicator, which is the basis for measuring structural or underlying budget balances, does not adjust for the effects of cyclical fluctuations in asset prices. This implies that, by default, asset price related effects on revenues are included in the structural budget measure. That can be misleading for policy makers where asset price shifts prove to be temporary, leading to pro-cyclical fiscal action, especially where policy makers cut tax rates or increase spending in response to unexpected revenue buoyancy. The paper first presents econometric estimates of tax revenue elasticities measuring the response of the major tax categories to house-price and equity-price movements. It then uses these elasticities to adjust revenues for the effects of asset price cycles measured in terms of deviations from “fundamental” and smoothed asset prices. To the extent that asset price movements are independent of, and uncorrelated with, the output cycle, the adjustment can be added to the conventional structural balance to create an asset-adjusted structural balance. The analysis is retrospective, but an important consideration has been to improve the identification of cyclical revenue fluctuations as they occur, or as they are incorporated into fiscal projections, and to be able to recognise the source of revenue “surprises”. L'ajustement des soldes budgétaires en fonction des cycles de prix des actifs Le présent document expose une méthode d?ajustement des soldes budgétaires structurels en fonction des cycles de prix des actifs et donne des estimations des soldes budgétaires structurels corrigés des fluctuations conjoncturelles des prix des logements et des prix des actions pour les pays de l?OCDE. L?indicateur traditionnel des soldes budgétaires corrigés des influences conjoncturelles, qui sert à mesurer les soldes structurels ou sous-jacents, ne s?ajuste pas en fonction des effets des fluctuations conjoncturelles des prix des actifs. Il en résulte que, par défaut, les effets des prix des actifs sur les recettes sont pris en compte dans la mesure du budget structurel. Cela peut induire en erreur les décideurs publics en cas de variations temporaires des prix des actifs, conduisant à une action budgétaire pro-cyclique, surtout lorsque des mesures d?allégement d?impôt ou d?augmentation de dépenses sont prises en présence d?une abondance inattendue de recettes. Ce document présente tout d?abord des estimations économétriques des élasticités des recettes fiscales mesurant la réaction des principales catégories d?impôt aux variations des prix des logements et des prix des actions. Ces élasticités sont ensuite utilisées pour ajuster les recettes en fonction des effets des cycles de prix des actifs mesurés en termes d?écarts par rapport aux prix « fondamentaux » ou lissés. Dans la mesure où les fluctuations des prix des actifs sont indépendantes du cycle de la production, ou sans lien avec ce dernier, l?ajustement peut être ajouté au solde structurel classique afin d?obtenir un solde structurel corrigé des fluctuations des prix des actifs. L?analyse est rétrospective, mais l?on s?est attaché tout particulièrement à mieux identifier les fluctuations conjoncturelles des recettes au fur et à mesure de leur survenue, ou de leur incorporation dans les projections budgétaires, et à parvenir à reconnaître l?origine de recettes « surprenantes ».

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    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 868.

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    Date of creation: 25 May 2011
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    Handle: RePEc:oec:ecoaaa:868-en
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