Fiscal Policy and Financial Market Movements

92 Pages Posted: 21 Jul 2022

Date Written: July 1, 2010

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

JEL Classification: E61, E62, H61, H62, E32

Suggested Citation

Tagkalakis, Athanasios, Fiscal Policy and Financial Market Movements (July 1, 2010). Bank of Greece Working Paper No. 116, Available at SSRN: https://ssrn.com/abstract=4166834 or http://dx.doi.org/10.2139/ssrn.4166834

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

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