Fiscal policy and financial market movements

Athanasios Tagkalakis

No 116, Working Papers from Bank of Greece

Abstract: This paper estimates a fiscal policy reaction function in order to investigate the links between financial and real estate market movements and fiscal policy outcomes. An increase in asset prices affects in a positive and significant manner primary balances, with the response reflecting both an increase in government revenues and a fall in government spending. The most important impact on fiscal balances is due to changes in residential property prices. Changes in equity and commercial property prices are also important determinants of fiscal balances. Our findings suggest that the steepening of the slope of the yield curve contributes to expenditure based fiscal discipline.

Keywords: Asset prices; slope of the yield curve; fiscal policy; reaction functions (search for similar items in EconPapers)
JEL-codes: E32 E61 E62 H61 H62 (search for similar items in EconPapers)
Pages: 92
Date: 2010-07
New Economics Papers: this item is included in nep-mac
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Journal Article: Fiscal policy and financial market movements (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:116

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