Dynamics between stock market movements and fiscal policy: empirical evidence from emerging Asian economics

Duy-Tung Bui, Matthieu Llorca () and Thi Mai
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Duy-Tung Bui: School of Public Finance - University of Economics Ho Chi Minh City, LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE]
Matthieu Llorca: LEDi - Laboratoire d'Economie de Dijon - UB - Université de Bourgogne - CNRS - Centre National de la Recherche Scientifique
Thi Mai: School of Public Finance - University of Economics Ho Chi Minh City

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Abstract: Pro-cyclical fiscal policy has raised concern in many emerging economies due to its adverse consequences to the economic activities. This paper takes a different approach to the issue, which aims to examine the bidirectional relationships between fiscal policy and stock market activities, using a panel of 12 emerging Asia-Pacific economies from 1990 to 2015. We estimate a variety of Panel Vector Autoregressive models to test for the consistence of the results. The empirical results show that fiscal policies in these countries tend to a pro-cyclical path in responding to stock market movements. The pro-cyclical behavior is found with both government expenditure and government revenue. On the other hand, a fiscal consolidation attempt has a rewarding effect on stock prices.

Date: 2018
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Published in Pacific-Basin Finance Journal, 2018, 51, pp.65-74

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04704551

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