Australia’s fiscal surplus: Child of a credit and real estate boom

Eduardo Garzón Espinosa, Bibiana Medialdea García, Esteban Cruz Hidalgo and Carlos Sánchez Mato
Additional contact information
Eduardo Garzón Espinosa: Universidad Autónoma de Madrid, Spain
Bibiana Medialdea García: Universidad Complutense de Madrid, Spain
Carlos Sánchez Mato: Universidad Complutense de Madrid, Spain

The Economic and Labour Relations Review, 2022, vol. 33, issue 4, 850-868

Abstract: For several years leading up to the 2008 financial crisis, Australia registered a public surplus, and this was generally interpreted as the result of responsible fiscal policy. However, since the outbreak of that crisis, no such fiscal balance has again been attained, giving rise to a range of explanations from the political incapacity of governments to the weak economic behaviour characterising the post-crisis era. Noteworthy in any case is that analysts have failed to cite the importance of a factor that was key to reaching pre-crisis surpluses: the vertiginous growth of private debt. This work argues that it was precisely the intense granting of bank loans and consequent increased demand from the private sector that boosted economic activity and led to the generation of public income sufficient to feed the fiscal surpluses of that period. Indeed, according to the proposals of Wynne Godley, this would have been the only way to register a public surplus in a context of current account deficits, typical of the Australian economy. This paper considers whether Australian private debt played a significant role in achieving fiscal surplus by way of a review of the Australian real estate boom and public accounts from the 1990s onward, also estimating an econometric model of autoregressive vectors to explore the link between these two variables. The results obtained appear to corroborate the hypothesis: severe private borrowing contributed to Australia’s fiscal surpluses. This finding has significant implications for budgetary policy. JEL Codes: E51, E62, H62

Keywords: Australia; credit boom; endogenous money; fiscal surplus; sectoral balances sheets (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/10353046221137635 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:ecolab:v:33:y:2022:i:4:p:850-868

DOI: 10.1177/10353046221137635

Access Statistics for this article

More articles in The Economic and Labour Relations Review
Bibliographic data for series maintained by SAGE Publications ().