Luca Agnello, Banque de France, Service d’Etude des Politiques de Finances Publiques (FIPU), 31 Rue Croix des Petits Champs, 75001 Paris, France. Tel: +33 (0)142 97 73 00; Fax: +33 (0)142 92 49 50; Email: The code used to estimate the panel VAR model is a modification of the program provided by Inessa Love and Lea Zicchino and is based on Love and Zicchino (2006).


We analyse the impact of fiscal policy on asset prices using a panel vector auto-regressive (PVAR) approach and quarterly data for ten industrialized countries. We find that positive fiscal shocks lead to a temporary fall in stock prices and a gradual and persistent decrease in housing prices. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding-out effects and the deterioration of credit conditions; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) a more persistent response of asset prices for countries with a lower degree of openness; (iv) a larger impact of fiscal policy on asset prices for small countries; (v) a close link between the responsiveness of asset prices to fiscal policy and the government’s size; (vi) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization; and (vii) significant fiscal multiplier effects in the context of severe housing busts. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.