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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. Automatic stabilizers and discretionary fiscal policy generally respond to output fluctuations, whereas revenue increases due to house price booms are largely treated as permanent. Thus, neglecting the direct and indirect impact of asset prices on fiscal accounts encourages procyclical fiscal policies.

Macroeconomics --- Public Finance --- Real Estate --- Taxation --- Business Fluctuations --- Cycles --- International Lending and Debt Problems --- Financial Crises --- Debt --- Debt Management --- Sovereign Debt --- Housing Supply and Markets --- Taxation, Subsidies, and Revenue: General --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Fiscal Policy --- Public finance & taxation --- Property & real estate --- Public debt --- Housing prices --- Debt bias --- Financial cycles --- Private debt --- Prices --- Tax policy --- Financial sector policy and analysis --- Fiscal policy --- Debts, Public --- Housing --- Tax administration and procedure --- Business cycles --- Denmark

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Some countries support smaller firms through tax incentives in an effort to stimulate job creation and startups, or alleviate specific distortions, such as financial constraints or high regulatory or tax compliance costs. In addition to fiscal costs, tax incentives that discriminate by firm size without specifically targeting R&D investment can create disincentives for firms to invest and grow, negatively affecting firm productivity and growth. This paper analyzes the relationship between size-related corporate income tax incentives and firm productivity and growth, controlling for other policy and firm-level factors, including product market regulation, financial constraints and innovation. Using firm level data from four European economies over 2001–13, we find evidence that size-related tax incentives that do not specifically target R&D investment can weigh on firm productivity and growth. These results suggest that when designing size-based tax incentives, it is important to address their potential disincentive effects, including by making them temporary and targeting young and innovative firms, and R&D investment explicitly.

Taxation --- Corporate Taxation --- Production and Operations Management --- Business Taxes and Subsidies --- Firm Performance: Size, Diversification, and Scope --- Economywide Country Studies: Europe --- 'Panel Data Models --- Spatio-temporal Models' --- Taxation, Subsidies, and Revenue: General --- Production --- Cost --- Capital and Total Factor Productivity --- Capacity --- Macroeconomics: Production --- Public finance & taxation --- Macroeconomics --- Corporate & business tax --- Tax incentives --- Total factor productivity --- Productivity --- Corporate income tax --- Marginal effective tax rate --- Taxes --- Tax policy --- Industrial productivity --- Corporations --- Tax administration and procedure --- United Kingdom

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Europe’s high pre-existing level of financial development can partly account for the relatively smaller reach of fintech payment and lending activities compared to some other regions. But fintech activity is growing rapidly. Digital payment schemes are expanding within countries, although cross-border and pan-euro area instruments are not yet widespread, notwithstanding important enabling EU level regulation and the establishment of instant payments by the ECB. Automated lending models are developing but remain limited mainly to unsecured consumer lending. While start-ups are pursuing platform-based approaches under minimal regulation, there is a clear trend for fintech companies to acquire balance sheets and, relatedly, banking licenses as they expand. Meanwhile, competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition, thereby causing them to increasingly resemble balanced sheet-based fintech companies. These developments could improve the efficiency and reach of financial intermediation while also adding to profitability pressures for some banks. Although the COVID-19 pandemic could call into question the viability of platform-based lending fintechs funding models given that investors could face much higher delinquencies, it may also offer growth opportunities to those fintechs that are positioned to take advantage of the ongoing structural shift in demand toward virtual finance.

Business and Economics --- Accounting --- Industries: Financial Services --- Financial Institutions and Services: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Public Administration --- Public Sector Accounting and Audits --- Computer applications in industry & technology --- Finance --- Financial reporting, financial statements --- Fintech --- Peer-to-peer lending --- Loans --- Financial statements --- Crowdfunding --- Technology --- Financial institutions --- Public financial management (PFM) --- Financial services industry --- Technological innovations --- Finance, Public --- Capital market --- Netherlands, The

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Europe’s high pre-existing level of financial development can partly account for the relatively smaller reach of fintech payment and lending activities compared to some other regions. But fintech activity is growing rapidly. Digital payment schemes are expanding within countries, although cross-border and pan-euro area instruments are not yet widespread, notwithstanding important enabling EU level regulation and the establishment of instant payments by the ECB. Automated lending models are developing but remain limited mainly to unsecured consumer lending. While start-ups are pursuing platform-based approaches under minimal regulation, there is a clear trend for fintech companies to acquire balance sheets and, relatedly, banking licenses as they expand. Meanwhile, competition is pushing many traditional banks to adopt fintech instruments, either in-house or by acquisition, thereby causing them to increasingly resemble balanced sheet-based fintech companies. These developments could improve the efficiency and reach of financial intermediation while also adding to profitability pressures for some banks. Although the COVID-19 pandemic could call into question the viability of platform-based lending fintechs funding models given that investors could face much higher delinquencies, it may also offer growth opportunities to those fintechs that are positioned to take advantage of the ongoing structural shift in demand toward virtual finance.

Netherlands, The