The paper argues that there are important links between asset prices and public finances which can strongly affect the variability of fiscal balances. Asset prices affect fiscal balances via capital gains and turnover related taxes, and via wealth effects on consumption and indirect taxes. The...

This paper studies the interplay of fiscal policy and asset price returns of the United States in a time-varying-parameter vector autoregressive model. Using annual data from 1890 to 2013, we study the effects of dynamic shocks to both fiscal policy and asset returns on asset returns and fiscal...

This paper empirically explores the short- and long-run effects of fiscal and monetary policies on US stock returns and tests the validity of market efficiency. The results support the presence of a strong long-run (equilibrium) relation binding stock prices with fiscal (but not monetary)...

This paper examines the links between asset price movements and fiscal adjustments. Our findings suggest that a pick up in asset prices increases the probability of initiating a fiscal adjustment, but it does not necessarily lead to a sustainable correction of fiscal imbalances. However, higher...