{
  "title": "Recognizing the Bias: Financial Cycles and Fiscal Policy",
  "publication": "IMF Working Papers, November 24, 2015",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/recognizing-the-bias-financial-cycles-and-fiscal-policy-43418",
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  "summary": "This paper argues that asset price cycles have significant effects on fiscal outcomes. In particular, there is evidence of debt bias—the tendency of debt to increase over the cycle— that is significantly larger for house price cycles than stand-alone business cycles.",
  "sections": [
    {
      "heading": "Main argument",
      "content": "- Asset price cycles have significant effects on fiscal outcomes.\n- There is evidence of debt bias—the tendency of debt to increase over the cycle—that is significantly larger for house price cycles than stand-alone business cycles.\n- Automatic stabilizers and discretionary fiscal policy generally respond to output fluctuations, whereas revenue increases due to house price booms are largely treated as permanent.\n- Neglecting the direct and indirect impact of asset prices on fiscal accounts encourages procyclical fiscal policies."
    },
    {
      "heading": "Evidence and mechanisms",
      "content": "- Debt bias is observed over the cycle and is \"significantly larger for house price cycles than stand-alone business cycles.\"\n- Fiscal policy instruments respond asymmetrically:\n  - Automatic stabilizers and discretionary fiscal policy respond to output fluctuations.\n  - Revenue increases linked to house price booms are largely treated as permanent, creating a channel for debt accumulation.\n- The interaction of housing cycles and fiscal accounting drives a procyclical bias in public debt paths."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Fiscal policy frameworks should account for asset price cycles—especially house price cycles—to avoid procyclical outcomes.\n- Policymakers should distinguish between cyclical revenue gains from house price booms and permanent revenue increases to prevent treating boom-related revenues as recurring.\n- Strengthening fiscal policy design to incorporate direct and indirect impacts of asset prices can reduce the tendency for public debt to rise over the cycle."
    },
    {
      "heading": "Keywords and subjects highlighted",
      "content": "- Subjects: Debt bias, Financial cycles, Financial sector policy and analysis, Fiscal policy, Housing prices, Prices, Private debt, Public debt, Tax policy\n- Keywords include: bias estimate, cycle episode, cycles result in a public sector debt bias, debt, debt bias, Financial cycles, Global, growth episode, growth shock, house price cycle episode, house price cycles result in a public sector debt bias, house price episode, house-price shock, housing cycles, Housing prices, output gap downturn, price, private debt, public debt, state dummy, WP\n\nRecognizing the Bias: Financial Cycles and Fiscal Policy — IMF Working Paper (November 24, 2015).\n\n---\n\n Content in this bundle\n\n- 1. Houses Price Episodes\n  - 1. Houses Price Episodes (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 1. Houses Price Episodes (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/recognizing-the-bias-financial-cycles-and-fiscal-policy-43418"
    }
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    "Authors: Nina Budina, Borja Gracia, Xingwei Hu, Sergejs Saksonovs",
    "Published: November 24, 2015",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513508863.001",
    "Asset price cycles have significant effects on fiscal outcomes.",
    "There is evidence of debt bias—the tendency of debt to increase over the cycle—that is significantly larger for house price cycles than stand-alone business cycles.",
    "Automatic stabilizers and discretionary fiscal policy generally respond to output fluctuations, whereas revenue increases due to house price booms are largely treated as permanent.",
    "Neglecting the direct and indirect impact of asset prices on fiscal accounts encourages procyclical fiscal policies.",
    "Debt bias is observed over the cycle and is \"significantly larger for house price cycles than stand-alone business cycles.\"",
    "Fiscal policy instruments respond asymmetrically:",
    "The interaction of housing cycles and fiscal accounting drives a procyclical bias in public debt paths.",
    "Fiscal policy frameworks should account for asset price cycles—especially house price cycles—to avoid procyclical outcomes.",
    "Policymakers should distinguish between cyclical revenue gains from house price booms and permanent revenue increases to prevent treating boom-related revenues as recurring.",
    "Strengthening fiscal policy design to incorporate direct and indirect impacts of asset prices can reduce the tendency for public debt to rise over the cycle.",
    "Subjects: Debt bias, Financial cycles, Financial sector policy and analysis, Fiscal policy, Housing prices, Prices, Private debt, Public debt, Tax policy",
    "Keywords include: bias estimate, cycle episode, cycles result in a public sector debt bias, debt, debt bias, Financial cycles, Global, growth episode, growth shock, house price cycle episode, house price cycles result in a public sector debt bias, house price episode, house-price shock, housing cycles, Housing prices, output gap downturn, price, private debt, public debt, state dummy, WP",
    "**1. Houses Price Episodes**"
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