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

85 Pages Posted: 3 Jan 2017

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: December 2016

Abstract

The introduction of a temporary housing tax as prominent part of the 2011 fiscal consolidation plan generated a sizable quasi-experiment across Italian municipalities and households, which we exploit to study the effects of this policy on consumer spending. The tax hike on the main dwelling led to large expenditure cuts (especially on vehicle purchases) among mortgagors, who hold low liquid wealth relative to income despite owning sizable illiquid assets. In contrast, higher tax rates on other residential properties mostly affected affluent home-owners, thereby having only a negligible impact on consumer spending.

Keywords: fiscal consolidation, housing taxes, marginal propensity to consume, mortgage debt., tax hike

JEL Classification: E21, E62

Suggested Citation

Surico, Paolo and Trezzi, Riccardo, Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment (December 2016). CEPR Discussion Paper No. DP11735. Available at SSRN: https://ssrn.com/abstract=2893087

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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