Structural balances and revenue windfalls - the role of asset prices revisited

Richard Morris () and Ludger Schuknecht ()
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Richard Morris: Corresponding author: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main; Germany., http://www.ecb.europa.eu/home/html/index.en.html

No 737, Working Paper Series from European Central Bank

Abstract: In this paper we revisit one of the “missing links” between budget balances and the economic cycle, namely the impact of asset prices on fiscal revenues. We estimate revenue elasticities with respect to equity and real estate price indices for 16 OECD countries, as well as for a synthetic euro area aggregate. For a sub-sample of euro area countries, we use these elasticities to investigate the impact of asset prices on budget balances and the assessment of the fiscal stance by adjusting existing estimates of cyclically adjusted balances for the asset price “cycle”. The results support the view that asset price movements are a major factor behind unexplained changes in the cyclically adjusted balance, which, if not accounted for, can lead to erroneous conclusions regarding underlying fiscal developments. JEL Classification: H2, H6, E6, G1.

Keywords: Fiscal policies; deficits; asset prices; tax revenues. (search for similar items in EconPapers)
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Date: 2007-03
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Persistent link: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20070737

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