The Neglected Effect of Fiscal Policy on Stock and Bond Returns
Autor(a) principal: | |
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Data de Publicação: | 2001 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10362/83522 |
Resumo: | We analyze the effect of taxes and government spending on quarterly market returns of stocks, government bonds, and corporate bonds. In US data from 1960 to 2000, a one standard deviation increase in the share of tax receipts in GDP has a statistically and economically significant effect on returns, lowering annualized expected returns by 4% and 9% at quarterly and yearly horizons, respectively. Interestingly, the impact of taxes is quantitatively similar for stock and bond returns. These results can partly be explained by the high persistence of the tax series so that increases today imply permanently higher tax levels in the future. an increase in government spending has a positive impact on expected returns, but the effect is statistically significant only for bonds, at short horizons. Our findings represent a novel test of Ricardian Equivalence, using market returns. Fiscal policy shocks account for 3-4% of the variation in unexpected excess stock returns and 8-10% of the variation in unexpected excess bond returns. When fiscal and monetary policy changes are jointly identified, our results remain qualitatively unchanged and the quantitative results are only reinforced. More importantly as is find that fiscal policy is at least as important a source of return variability as is the policy of the Federal Reserve. The finding are surprisingly robust to various system specifications, such as cointegration assumptions and variable choice. Our results strongly suggest that fiscal policy shocks should be given more serious consideration in asset pricing. |
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The Neglected Effect of Fiscal Policy on Stock and Bond ReturnsWe analyze the effect of taxes and government spending on quarterly market returns of stocks, government bonds, and corporate bonds. In US data from 1960 to 2000, a one standard deviation increase in the share of tax receipts in GDP has a statistically and economically significant effect on returns, lowering annualized expected returns by 4% and 9% at quarterly and yearly horizons, respectively. Interestingly, the impact of taxes is quantitatively similar for stock and bond returns. These results can partly be explained by the high persistence of the tax series so that increases today imply permanently higher tax levels in the future. an increase in government spending has a positive impact on expected returns, but the effect is statistically significant only for bonds, at short horizons. Our findings represent a novel test of Ricardian Equivalence, using market returns. Fiscal policy shocks account for 3-4% of the variation in unexpected excess stock returns and 8-10% of the variation in unexpected excess bond returns. When fiscal and monetary policy changes are jointly identified, our results remain qualitatively unchanged and the quantitative results are only reinforced. More importantly as is find that fiscal policy is at least as important a source of return variability as is the policy of the Federal Reserve. The finding are surprisingly robust to various system specifications, such as cointegration assumptions and variable choice. Our results strongly suggest that fiscal policy shocks should be given more serious consideration in asset pricing.Nova SBERUNTavares, JoséValkanov, Rossen2019-10-07T15:05:05Z2001-102001-10-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10362/83522engTavares, José and Valkanov, Rossen, The Neglected Effect of Fiscal Policy on Stock and Bond Returns (October, 2001). FEUNL Working Paper Series No. 413info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-03-11T04:37:16Zoai:run.unl.pt:10362/83522Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T03:36:20.770237Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
title |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
spellingShingle |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns Tavares, José |
title_short |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
title_full |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
title_fullStr |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
title_full_unstemmed |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
title_sort |
The Neglected Effect of Fiscal Policy on Stock and Bond Returns |
author |
Tavares, José |
author_facet |
Tavares, José Valkanov, Rossen |
author_role |
author |
author2 |
Valkanov, Rossen |
author2_role |
author |
dc.contributor.none.fl_str_mv |
RUN |
dc.contributor.author.fl_str_mv |
Tavares, José Valkanov, Rossen |
description |
We analyze the effect of taxes and government spending on quarterly market returns of stocks, government bonds, and corporate bonds. In US data from 1960 to 2000, a one standard deviation increase in the share of tax receipts in GDP has a statistically and economically significant effect on returns, lowering annualized expected returns by 4% and 9% at quarterly and yearly horizons, respectively. Interestingly, the impact of taxes is quantitatively similar for stock and bond returns. These results can partly be explained by the high persistence of the tax series so that increases today imply permanently higher tax levels in the future. an increase in government spending has a positive impact on expected returns, but the effect is statistically significant only for bonds, at short horizons. Our findings represent a novel test of Ricardian Equivalence, using market returns. Fiscal policy shocks account for 3-4% of the variation in unexpected excess stock returns and 8-10% of the variation in unexpected excess bond returns. When fiscal and monetary policy changes are jointly identified, our results remain qualitatively unchanged and the quantitative results are only reinforced. More importantly as is find that fiscal policy is at least as important a source of return variability as is the policy of the Federal Reserve. The finding are surprisingly robust to various system specifications, such as cointegration assumptions and variable choice. Our results strongly suggest that fiscal policy shocks should be given more serious consideration in asset pricing. |
publishDate |
2001 |
dc.date.none.fl_str_mv |
2001-10 2001-10-01T00:00:00Z 2019-10-07T15:05:05Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10362/83522 |
url |
http://hdl.handle.net/10362/83522 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Tavares, José and Valkanov, Rossen, The Neglected Effect of Fiscal Policy on Stock and Bond Returns (October, 2001). FEUNL Working Paper Series No. 413 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Nova SBE |
publisher.none.fl_str_mv |
Nova SBE |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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