Consumer Spending and Property Taxes

FEDS Working Paper No. 2015-057

http://dx.doi.org/10.17016/FEDS.2015.057

70 Pages Posted: 16 Aug 2015

See all articles by Paolo Surico

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Riccardo Trezzi

Board of Governors of the Federal Reserve System

Date Written: July 16, 2015

Abstract

A major change of the property tax system in 2011 generated significant variation in the amount of housing taxes paid by Italian households. Using new questions added to the Survey on Household Income and Wealth (SHIW), we exploit this variation to provide an unprecedented analysis of the effects of property taxes on consumer spending. A tax on the main dwelling leads to large expenditure cuts among households with mortgage debt and low liquid wealth but generates only small revenues for the government. In contrast, higher tax rates on other residential properties reduce private savings and yield large tax revenues.

Keywords: fiscal consolidation, marginal propensity to spend, mortgage debt, residential property taxes

JEL Classification: E21, E62, H31

Suggested Citation

Surico, Paolo and Trezzi, Riccardo, Consumer Spending and Property Taxes (July 16, 2015). http://dx.doi.org/10.17016/FEDS.2015.057. Available at SSRN: https://ssrn.com/abstract=2642435 or http://dx.doi.org/10.2139/ssrn.2642435

Paolo Surico

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Riccardo Trezzi (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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