, Volume 39, Issue 1, pp 123–156 | Cite as

Fiscal policy and asset price volatility

  • Athanasios TagkalakisEmail author
Original Paper


This paper investigates the relationship between volatility of different asset prices and the volatility of various indicators of fiscal policy (primary balance, spending and revenue). We find evidence that asset price volatility affects the volatility of fiscal policy stance in a positive and significant way. The effect comes primarily through residential property and equity price volatility on government revenue and spending. Increased volatility in commercial property prices is associated with increased variability of government revenue. Output growth volatility is the dominant determinant of revenue and primary balance variability, whereas bad budgetary conditions and the size of the public sector are the most significant determinants of spending variability. Trade openness leads to greater variability of government spending, revenue and primary balance to GDP ratios.


Asset prices Fiscal policy Volatility 

JEL Classification

E61 E62 H61 H62 E32 



I would like to thank the Editor Fritz Breuss and the referees of Empirica for their valuable comments and suggestions. I would also like to thank the Bank for International Settlements for kindly providing the asset price data, as well as Michael Artis, Anindya Banerjee, Claudio Borio, Heather Gibson, Panagiotis Konstantinou, Eric Maskin, Ludger Schuknecht, Pantelis Tagkalakis, George Tavlas, and Joel Slemrod. The views of the paper are my own and do not necessarily reflect those of the Bank of Greece.


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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  1. 1.Economic Research DepartmentBank of GreeceAthensGreece

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