Global Capital Markets, Housing Prices, and Partisan Fiscal Policies

Economics & Politics, 2018, DOI: 10.1111/ecpo.12111

Winner: 2013 APSA Best Comparative Policy Paper Award, APSA Public Policy Section and the International Comparative Analysis Forum

48 Pages Posted: 27 Sep 2013 Last revised: 1 Apr 2018

See all articles by Ben W. Ansell

Ben W. Ansell

University of Oxford - Department of Politics and International Relations

J. Lawrence Broz

University of California, San Diego (UCSD) - Department of Political Science

Thomas Flaherty

University of California, San Diego (UCSD), Division of Social Sciences, Department of Political Science, Students

Multiple version iconThere are 2 versions of this paper

Date Written: February 7, 2018

Abstract

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run-ups in house prices while most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly-provided social insurance because rising house prices allow homeowners to self-insure against income loss. By contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross-national surveys that supports these claims, as well as a 'before and after' analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.

Keywords: International capital flows, house prices, fiscal policy, global imbalances, social insurance

JEL Classification: E62, F32, F41, H3

Suggested Citation

Ansell, Ben W. and Broz, J. Lawrence and Flaherty, Thomas, Global Capital Markets, Housing Prices, and Partisan Fiscal Policies (February 7, 2018). Economics & Politics, 2018, DOI: 10.1111/ecpo.12111; Winner: 2013 APSA Best Comparative Policy Paper Award, APSA Public Policy Section and the International Comparative Analysis Forum. Available at SSRN: https://ssrn.com/abstract=2303300 or http://dx.doi.org/10.2139/ssrn.2303300

Ben W. Ansell

University of Oxford - Department of Politics and International Relations ( email )

Manor Road
Oxford, OX1 3UQ
United Kingdom

J. Lawrence Broz (Contact Author)

University of California, San Diego (UCSD) - Department of Political Science ( email )

9500 Gilman Drive
Code 0521
La Jolla, CA 92093-0521
United States

HOME PAGE: http://pages.ucsd.edu/~jlbroz/

Thomas Flaherty

University of California, San Diego (UCSD), Division of Social Sciences, Department of Political Science, Students ( email )

9500 Gilman Drive
Code 0521
La Jolla, CA 92093-0521
United States

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