Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices

Luca Agnello, Gilles Dufrénot, Ricardo M. Sousa

Risultato della ricerca: Article

3 Citazioni (Scopus)

Abstract

This paper tests for nonlinear effects of asset prices on the US fiscal policy. By modeling government spending and taxes as time-varying transition probability Markovian processes (TVPMS), we find that taxes significantly adjust in a nonlinear fashion to asset prices. In particular, taxes respond to housing and (to a smaller extent) to stock price changes during normal times. However, at periods characterized by high financial volatility, government taxation only counteracts stock market developments (and not the dynamics of the housing sector). As for government spending, it is neutral vis-a-vis the asset market cycles. We conclude that, correcting the fiscal balance and, notably, the revenue side for time-varying effects of asset prices provides a more accurate assessment of the fiscal stance and its sustainability
Lingua originaleEnglish
pagine (da-a)25-36
Numero di pagine12
RivistaEconomic Modelling
Volume34
Stato di pubblicazionePublished - 2013

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Transition probability
Tax
Fiscal policy
Time-varying
Asset prices
Markov switching
Fiscal
Government
Price changes
Asset markets
Taxation
Modeling
Government spending
Stock market development
Stock prices
Nonlinear effects
Sustainability
Revenue

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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Using time-varying transition probabilities in Markov switching processes to adjust US fiscal policy for asset prices. / Agnello, Luca; Dufrénot, Gilles; Sousa, Ricardo M.

In: Economic Modelling, Vol. 34, 2013, pag. 25-36.

Risultato della ricerca: Article

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