Get access



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.

Get access to the full text of this article