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Asset price volatility and government revenue

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  • Athanasios Tagkalakis

    (Bank of Greece)

Abstract

This paper investigates the effect of commercial, residential property and equity price volatility on the variability of cyclically adjusted government revenue. We find significant evidence that asset price volatility increases the variability of government revenue. A 1 percent increase in equity price volatility increases government revenue variability by 0.37-0.44 percent. An increase in residential property price volatility increases revenue volatility by about 0.15-0.22 percent, whereas this effect diminishes to 0.11 percent in case of commercial property price. This evidence reflects the automatic increase of government revenue variability due to asset price movements and supports arguments in favour of adjusting fiscal variables for both business cycle and asset price changes. However, we also find evidence that equity price variability increases revenue variability even when government revenue is adjusted for both economic and asset price cycles, indicating the presence of more complicated dynamics between fiscal variables and asset price changes.

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  • Athanasios Tagkalakis, 2011. "Asset price volatility and government revenue," Working Papers 133, Bank of Greece.
    • Handle: RePEc:bog:wpaper:133
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    Cited by:

    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    2. Rangan Gupta & Chi Keung Marco Lau & Stephen M. Miller & Mark E. Wohar, 2019. "US Fiscal Policy and Asset Prices: The Role of Partisan Conflict," International Review of Finance, International Review of Finance Ltd., vol. 19(4), pages 851-862, December.
    3. David Cronin & Kieran McQuinn, 2023. "The housing net worth channel and the public finances: evidence from a European country panel," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1251-1265, October.
    4. Kasselaki, Maria Th. & Tagkalakis, Athanasios O., 2016. "Fiscal policy and private investment in Greece," International Economics, Elsevier, vol. 147(C), pages 53-106.
    5. Ricci-Risquete, Alejandro & Ramajo, Julián & de Castro, Francisco, 2016. "Do Spanish fiscal regimes follow the euro-area trends? Evidence from Markov-Switching fiscal rules," Economic Modelling, Elsevier, vol. 59(C), pages 484-494.

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    More about this item

    Keywords

    Asset prices; government revenue; volatility; cyclical adjustment.;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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