Asset Booms and Structural Fiscal Positions: The Case of Ireland

IMF Working Papers, March 1, 2010

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Asset booms and sectoral changes can distort traditional estimates of structural fiscal revenue, and could lead to serious fiscal policy errors.
The paper extends the estimation of structural revenues to take account of asset prices and sectoral changes.
Application to the case of Ireland shows that excluding asset prices and sectoral changes led to a substantial bias in the estimation of structural revenues.
The structural balance prior to the crisis was much larger than earlier estimated.

Extends structural revenue estimation to incorporate:
- asset prices, and
- sectoral changes.
Aims to correct biases in traditional structural fiscal revenue measures that ignore these factors.

Focuses on Ireland, where a property bust revealed a large hole in the public finances.
Demonstrates that prior estimates of Ireland’s structural balance underestimated the true pre-crisis structural surplus when asset-price and sectoral effects are accounted for.

Ignoring asset booms and sectoral shifts in structural revenue estimates can lead to serious fiscal policy errors.
Incorporating asset-price and sectoral adjustments into structural revenue estimation can improve fiscal policy guidance and the assessment of fiscal positions during booms and busts.

Author: Daniel S Kanda
Date: March 1, 2010
Series: Working Paper No. 2010/057
Issue: 057
Volume: 2010
Pages: 23
DOI: https://doi.org/10.5089/9781451963687.001
Stock No: WPIEA2010057
ISBN: 9781451963687
ISSN: 1018-5941
Subjects: Asset prices, Expenditure, Fiscal stance, Output gap, Revenue administration
Keywords: GDP ratio, potential GDP, price index, WP

IMF Working Paper: "Asset Booms and Structural Fiscal Positions: The Case of Ireland" by Daniel S Kanda, March 1, 2010.