Recognizing the Bias: Financial Cycles and Fiscal Policy

Nina Budina, Borja Gracia, Xingwei Hu and Sergejs Saksonovs

MPRA Paper from University Library of Munich, Germany

Abstract: This paper argues that asset price cycles have significant effects on fiscal outcomes. In particular, there is evidence of debt bias—the tendency of debt to increase over the cycle— that is significantly larger for house price cycles than stand-alone business cycles. Automatic stabilizers and discretionary fiscal policy generally respond to output fluctuations, whereas revenue increases due to house price booms are largely treated as permanent. Thus, neglecting the direct and indirect impact of asset prices on fiscal accounts encourages procyclical fiscal policies.

Keywords: housing cycles; public debt; private debt; debt bias (search for similar items in EconPapers)
JEL-codes: E32 F34 G01 H63 (search for similar items in EconPapers)
Date: 2015-11-24
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Recognizing the Bias: Financial Cycles and Fiscal Policy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:68052

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