Financial Cycles and Fiscal Cycles

Abstract

There is an extensive literature on the behaviour of fiscal variables vis-à-vis the output cycle. We show that fiscal variables also co-vary with the financial cycle, as captured by fluctuations in the current account balance and credit growth. These financial factors affect fiscal outcomes, over and above their influence on the output cycle. We argue that fiscal surveillance and the design of fiscal rules should pay close attention to the interaction between the financial cycle and the fiscal cycle.

Recognizing the Bias: Financial Cycles and Fiscal Policy

“…As a consequence, in many countries prior to the recent financial crisis, public debt did not fall despite strong credit-driven growth and windfall revenues but increased sharply in its aftermath. Political economy factors help explain why governments may spend most windfall revenues during financial sector booms, often magnifying the impact of house price shocks and leaving fiscal policy to absorb the impact of the shock in downturns (Benetrix and Lane, 2011).…”

Financial Globalisation and the Crisis

“…While accepting that it is difficult to draw the line between sustainable and excessive imbalances, a prudential approach would suggest greater activism to lean against the wind. This includes operating a countercyclical fiscal policy that takes into account financial cycles as well as the output cycle (Benetrix and Lane 2011).…”

A Quantitative Analysis of the Main Lithuanian Taxes and their Optimisation during an Economic Crisis

“…The problem of the economic policy of the state during the crisis remains acute; therefore, the research presented in this article on the optimisation of economic policy measures remains relevant in order to analyse the economic policy measures introduced during the crisis as well as to determine the relevance of their impact on the economic system. in contemporary specialist publications (Bachmann, Jinjui, Bai, 2011;Benetrix, Lane, 2011;Frankel, Vegh, Vuletin, 2011;karazijienė, 2009;karpavičius, 2008;Lakštutienė, 2008;Nowak, 2013;Ravenhill, 2011;Weale, 2009, etc. ), the impact of the economic crisis on the economy is usually researched by applying regression analysis methods or/and occasional statistical research, such as the determination of the elasticity of fiscal policy on tools for economic indicators.…”

“…According to Ahrend, Cournède, Price (2008); Alesina, Campante, Tabellini (2008); Allen, Gale (2007); Atesoglu, emerson (2008) ;Bachmann, Jinjui (2013); Barrell, Holland (2010); Beležentis, Vijeikis (2010); Benetrix, Lane (2011);Bratčikovienė (2014); Castro (2010); Cicek, elgin (2010); Forni, monteforte, Sessa (2009);Galinienė, melnikas, miškinis (2011); Gylys (2009);Harvey (2010); Hennessey, Chairman (2010); Isaac (2008); and others, in the crisis phase of the economic cycle, it is prudent to apply certain measures of fiscal and monetary policy that stimulate the economic system to enter the recovery phase as soon as possible. Nonetheless, even today substantiated arguments are scarce as to what should be done differently in order to lessen the negative outcomes of an economic crisis.…”