DP11735 Consumer spending and fiscal consolidation: evidence from a housing tax experiment
|Author(s):||Paolo Surico, Riccardo Trezzi|
|Publication Date:||December 2016|
|Keyword(s):||fiscal consolidation, housing taxes, marginal propensity to consume, mortgage debt, tax hike|
|Programme Areas:||Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11735|
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.