Information content and consensus effect of fiscal plans

Authors

DOI:

https://doi.org/10.52292/j.estudecon.2025.4154

Keywords:

Fiscal policy, Treatment effect model, Event studies, Stock returns, Trading volume

Abstract

This paper investigated the extent to which fiscal plans provide novel information to investors and induce consensus over governments’ fiscal forecasts. Based on the mandatory disclosure requirements of the Stability and Growth Pact, we documented that fiscal plans are generally informative, but investors interpret their content differently. We further showed that, while fiscal plans that foresee spending cuts during downturns have substantial information content, they cause opinion divergence. Although these findings are consistent with recent evidence on the contractionary and uncertain effects of procyclical fiscal policy during recessions, they cast doubt on governments’ ability to anchor fiscal expectations in these periods.

Downloads

Download data is not yet available.

References

Abadie, A., Athey, S., Imbens, G. W. & Wooldridge, J. M. (2017). When shouldyou adjust standard errors for clustering? (NBER, Working Paper Series No. 24003). https://www.nber.org/papers/w24003

Afonso, A. & Sousa, R. M. (2011). What are the effects of fiscal policy on asset markets? Economic Modelling, 28(4), 1871-1890. https://doi.org/10.1016/j.econmod.2011.03.018Get rights and content

Agnello, L., Castro, V. & Sousa, R. M. (2012). How does fiscal policy react towealth composition and asset prices? Journal of Macroeconomics, 34(3), 874-890. https://doi.org/10.1016/j.jmacro.2012.04.001Get rights and content.

Agnello, L. & Sousa, R. M. (2013). Fiscal policy and asset prices. Bulletin of Economic Research, 65(2), 154-177. https://doi.org/10.1111/j.0307-3378.2011.00420.x

Albonico, A., Paccagnini, A. & Tirelli, P. (2016). In search of the Euro area fiscal stance. Journal of Empirical Finance, 39Part B, 254-264. https://doi.org/10.1016/j.jempfin.2016.06.007

Alesina, A. & Ardagna, S. (2010). Large changes in fiscal policy: Taxes versus spending. Tax Policy and the Economy, 24(1), 35-68. https://doi.org/10.1086/649828

Alesina, A., Ardagna, S., Perotti, R. & Schiantarelli, F. (2002). Fiscal policy, profits, and investment. American Economic Review, 92(3), 571-589. https://doi.org/10.1257/00028280260136255

Alesina, A., Favero, C. & Giavazzi, F. (2015). The output effect of fiscal consolidation plans. Journal of International Economics, 96, S19-S42. https://doi.org/10.1016/j.jinteco.2014.11.003

Alesina, A. & Perotti, R. (1996). Fiscal discipline and the budget process. American Economic Review, 86(2), 401-407. http://www.jstor.org/stable/2118160

Alesina, A., Perotti, R. & Tavares, J. (1998). The political economy of fiscal adjustments. Brookings Papers on Economic Activity, 1, 197-266. https://doi.org/10.2307/2534672

Anderson, G. & Cesa-bianchi, A. (2020). Crossing the credit channel: credit spreads and firm heterogeneity (IMF, Working Paper No. 267). https://doi.org/10.5089/9781513563336.001

Angrist, J. D., Jordà, Ò. & Kuersteiner, G. M. (2018). Semiparametric estimates of monetary policy effects: string theory revisited. Journal of Business and Economic Statistics, 36(3), 371-387. https://doi.org/10.1080/07350015.2016.1204919

Angrist, J. D. & Kuersteiner, G. M. (2011). Causal effects of monetary shocks: Semiparametric conditional independence tests with a multinomial propensity score. Review of Economics and Statistics, 93(3), 725-747. https://doi.org/10.1162/REST_a_00109

Ardagna, S. (2009). Financial markets’ behavior around episodes of large changes in the fiscal stance. European Economic Review, 53(1), 37-55. https://doi.org/10.1016/j.euroecorev.2008.07.003

Arin, K. P., Mamun, A. & Purushothman, N. (2009). The effects of tax policy on financial markets: G3 evidence. Review of Financial Economics, 18, 33-46.https://doi.org/10.1016/j.rfe.2008.05.001

Attinasi, M. G. & Metelli, L. (2017). Is fiscal consolidation self-defeating? A panelVAR analysis for the Euro area countries. Journal of International Money and Finance, 74C,147-164. https://doi.org/10.1016/j.jimonfin.2017.03.009

Auerbach, A. J. & Gorodnichenko, Y. (2012). Measuring the output responses to fiscal policy. American Economic Journal: Economic Policy, 4(2), 1-27. http://dx.doi.org/10.2139/ssrn.1667585

Auerbach, A. J. & Gorodnichenko, Y. (2013). Fiscal multipliers in recession and expansion. In A. Alesina & F. Giavazzi (Eds.), Fiscal policy after the financial crisis (pp. 63-98). Chicago: University of Chicago Press.

Blanchard, O. & Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Quarterly Journal of Economics, 117(4), 1329-1368. https://doi.org/10.1162/003355302320935043

Cabrera, M., Dwyer, G. P. & Samartín-Saénz, M. (2016). Government finances and bank bailouts : Evidence from European stock markets. Journal of Empirical Finance, 39 Part B, 169-179. https://doi.org/10.1016/j.jempfin.2016.06.005

Campbell, J. Y., Lo, A. W. & MacKinlay, A. C. (1997). The econometrics of financial markets. New Jersey: Princeton University Press.

Caselli, F. & Wingender, P. (2018). Bunching at 3 percent: The Maastricht fiscal

criterion and government Deficits. (IMF, Working Paper No. 182). https://www.imf.org/en/Publications/WP/Issues/2018/08/03/Bunching-at-3-Percent-The-Maastricht-Fiscal-Criterion-and-Government-Deficits-46135

Chae, J. (2005). Trading volume, information asymmetry, and timing information. The Journal of Finance, 60(1), 413-442. https://doi.org/10.1111/j.1540-6261.2005.00734.x

Chatziantoniou, I., Duffy, D. & Filis, G. (2013). Stock market response to monetary and fiscal policy shocks: Multi-country evidence. Economic Modelling, 30(1), 754-769. https://doi.org/10.1016/j.econmod.2012.10.005

Columbano, C. (2022). Measuring fiscal guidance transparency. Public Sector Economics, 46(2), 261-296. https://doi.org/10.3326/pse.46.2.4

Corwin, S. A. & Schultz, P. (2012). A simple way to estimate bid-ask spreads from daily high and low prices. The Journal of Finance, 67(2), 719-760. https://doi.org/10.1111/j.1540-6261.2012.01729.x

Darrat, A. F. (1988). On fiscal policy and the stock market. Journal of Money, Credit and Banking, 20(3), 353-363. https://doi.org/10.2307/1992261

Darrat, A. F. (1990). Stock returns, money, and fiscal deficits. The Journal of Financial and Quantitative Analysis, 25(3), 387–398. https://doi.org/10.2307/2330703

El Montasser, G., Gupta, R., Charl, J. & Miller, S. M. (2020). The time-series linkages between US fiscal policy and asset prices. Public Finance Review, 48(3), 303–339. https://doi.org/10.1177/1091142120916032

El-Shagi, M. & Schweinitz, G. von. (2021). Fiscal policy and fiscal fragility: Empirical evidence from the OECD. Journal of International Money and Finance, 115. https://doi.org/10.1016/j.jimonfin.2020.102292

Foresti, P. & Napolitano, O. (2017). On the stock market reactions to fiscal policies. International Journal of Finance and Economics, 22(4), 296-303. https://doi.org/10.1002/ijfe.1584

Frankel, J. (2011). Over-optimism in forecasts by official budget agencies and its implications. Oxford Review of Economic Policy, 27(4), 536-562. https://doi.org/10.1093/oxrep/grr025

Frankel, J. & Schreger, J. (2013). Over-optimistic official forecasts and fiscal rules in the eurozone. Review of World Economics, 149(2), 247-272. https://doi.org/10.1007/s10290-013-0150-9

Fujiwara, I. & Waki, Y. (2020). Fiscal forward guidance: A case for selective transparency. Journal of Monetary Economics, 116, 236-248. https://doi.org/10.1016/j.jmoneco.2019.10.007

Glynn, A. N. & Quinn, K. M. (2009). An introduction to the augmented inverse propensity weighted estimator. Political Analysis, 18(1), 36-56. https://doi.org/10.1093/pan/mpp036

Holthausen, R. W. & Verrecchia, R. E. (1990). The effect of informedness and consensus on price and volume behavior. Accounting Review, 65(1), 191-208. https://doi.org/10.1177/0148558X15571735

Jordà, Ò. (2005). Estimation and inference of impulse responses by local projections. American Economic Review, 95(1), 161-182. https://doi.org/10.1257/0002828053828518

Jordà, Ò. & Taylor, A. M. (2016). The time for austerity: Estimating the average treatment effect of fiscal policy. Economic Journal, 126(590), 219-255. https://doi.org/10.1111/ecoj.12332

Kandel, E. & Pearson, N. D. (1995). Differential interpretation of public signals and trade in speculative markets. Journal of Political Economy, 103(4), 831-872. http://dx.doi.org/10.1086/262005

Kandel, E. & Zilberfarb, B.-Z. (1999). Differential interpretation of information in inflation forecasts. The Review of Economics and Statistics, 81(2), 217-226.http://dx.doi.org/10.2139/ssrn.1516707

Kothari, S. P. & Warner, J. B. (2007). Econometrics of event studies. In B. E. Eckbo (Ed.), Handbook of Corporate Finance, Empirical Corporate Finance: Volume 1 (pp. 1-36). Hanover, New Hampshire, U.S.A: Elsevier/NorthHolland.

Landsman, W. R. & Maydew, E. L. (2002). Has the information content of quarterly earnings announcements declined in the past three decades? Journal of Accounting Research, 40(3), 797-808. https://doi.org/10.1111/1475-679X.00071

Larch, M., Orseau, E. & van der Wielen, W. (2021). Do EU fiscal rules support or hinder counter-cyclical fiscal policy? Journal of International Money and Finance, 112 (C). https://doi.org/10.1016/j.jimonfin.2020.102328

Laubach, T. (2009). New evidence on the interest rate effects of budget deficits and debt. Journal of the European Economic Association, 7(4), 858-885. https://doi.org/10.1162/JEEA.2009.7.4.858

Leeper, E. M. (2009). Anchoring fiscal expectations (NBER Working Paper Series No. 15269). https://ssrn.com/abstract=1459570

Leeper, E. M., Walker, T. B. & Yang, S.-C. S. (2009). Fiscal foresight and information flows. Econometrica, 81(3), 1115-1145. https://doi.org/10.3982/ECTA8337

Lundtofte, F. & Leoni, P. (2014). Growth forecasts, belief manipulation and capital markets. European Economic Review, 70(C), 108-125. https://doi.org/10.1016/j.euroecorev.2014.04.003

Marfatia, H. A., Gupta, R. & Miller, S. (2020). 125 Years of time-varying effects of fiscal policy on financial markets. International Review of Economics and Finance, 70, 303–320. https://doi.org/10.1016/j.iref.2020.07.011

Mumtaz, H. & Theodoridis, K. (2020). Fiscal policy shocks and stock prices in the United States. European Economic Review, 129, [103562]. https://doi.org/10.1016/j.euroecorev.2020.103562

Perotti, R. (2004). Estimating the effects of fiscal policy in OECD countries. (IGIER Working Paper No. 276). http://dx.doi.org/10.2139/ssrn.637189

Ramey, V. A. (2011). Can Government Purchases Stimulate the Economy? Journal of Economic Literature, 49(3), 673–685. http://dx.doi.org/10.1257/jel.49.3.673

Ricci, O. (2015). The Impact of Monetary Policy Announcements on the Stock Price of Large European Banks During the Financial Crisis. Journal of Banking and Finance, 52, 245-255. https://doi.org/10.1016/j.jbankfin.2014.07.001

Riera-Crichton, D., Vegh, C. A. & Vuletin, G. (2015). Procyclical and countercyclical fiscal multipliers: Evidence from OECD countries. Journal of International Money and Finance, 52 (C), 15-31. http://dx.doi.org/10.1016/j.jimonfin.2014.11.011

Robins, J. M., Rotnitzky, A. & Zhao, L. P. (1994). Estimation of regression coefficients when some regressors are not always observed. Journal of the American Statistical Association, 89(427), 846-866. https://doi.org/10.2307/2290910

Rosenbaum, P. R. & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41-55. https://doi.org/10.2307/2335942

Savor, P. & Wilson, M. (2013). How much do investors care about macroeconomic risk? Evidence from scheduled economic announcements. Journal of Financial and Quantitative Analysis, 48(2), 343-375. https://doi.org/10.1017/S002210901300015X

Strauch, R., Hallerberg, M. & Hagen, J. von. (2004). Budgetary forecasts in Europe - The track record of Stability and Convergence Programmes. (ECB, Working Paper Series No. 307). http://dx.doi.org/10.2139/ssrn.515069

Tavares, J. & Valkanov, R. (2003). Fiscal policy and asset returns. https://www.researchgate.net/publication/45579142_Fiscal_Policy_and_Asset_Returns

Verrecchia, R. E. (2001). Essays on disclosure. Journal of Accounting and Economics, 32(1-3), 97-180. https://doi.org/10.1016/S0165-4101(01)00025-8

Wachtel, P. & Young, J. (1987). Deficit announcements and interest rates. American Economic Review, 77(5), 1007-1012. https://www.jstor.org/stable/1810224

Ziogas, T. & Panagiotidis, T. (2021). Revisiting the political economy of fiscal adjustments. Journal of International Money and Finance, 111.

Downloads

Additional Files

Published

2024-07-02

How to Cite

Columbano, C. ., & Bafundi, A. (2024). Information content and consensus effect of fiscal plans. Estudios económicos, 41(83), 93–122. https://doi.org/10.52292/j.estudecon.2025.4154

Issue

Section

Articles