Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment

77 Pages Posted: 21 Jan 2016

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-07-27

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 Fiscal Consolidation: Evidence from a Housing Tax Experiment (2015-07-27). FEDS Working Paper No. 2015-57. Available at SSRN: https://ssrn.com/abstract=2719473 or http://dx.doi.org/10.17016/FEDS.2015.057r1

Paolo Surico (Contact Author)

London Business School - Department of Economics ( email )

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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

Board of Governors of the Federal Reserve System ( email )

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

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