• Focus: Assessing the dynamics of house prices in the euro area
• Fiscal decentralisation and fiscal discipline
• Taxation of housing
• Risk and uncertainty in euro area sovereign debt markets.

Other chapters of the Quarterly Report look at various issues related to fiscal policy. One contribution presents empirical evidence on the relationship between fiscal decentralisation and fiscal discipline. The analysis suggests that decentralisation can be beneficial for budgetary outcomes, and that it works best when subnational authorities are relatively self-reliant on own revenue sources. A further section explores the economic implications of various forms of housing taxation. Property tax revenue is generally small in relation to national output, indicating potential scope for shifting tax burdens away from labour and corporate income taxation and onto residential property holdings. Tax-deductibility of mortgage interest payments may also increase the risk of housing booms. A final contribution looks at sovereign bond spreads in the euro area, finding that the crisis has caused investors to generally demand a higher compensation for being exposed to a given level of public debt and contingent fiscal liabilities. The section further finds that a significant portion of credit spread increases remains unexplained by macro-economic fundamentals, suggesting that general policy uncertainty, in particular regarding the integrity of the euro area, may explain some of the risk aversion. Consistent policies, leading to a reduction of the component of spreads that is driven by policy uncertainty, will have positive effects on growth.

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Quarterly Report