Household Debt and the Dynamic Effects of Income Tax Changes

Paolo Surico and James Cloyne

No 9649, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Using a long span of expenditure survey data and a new narrative measure of exogenous income tax changes for the United Kingdom, we show that households with mortgage debt exhibit large and persistent consumption responses to tax changes. Home-owners without a mortgage, in contrast, do not appear to react, with responses not statistically different from zero at all horizons. Splitting the sample by age and education yields only limited evidence of heterogeneity as the distributions of these demographics tend to overlap across housing tenure groups. We interpret our findings through the lens of traditional and more recent theories of liquidity constraints, providing a novel interpretation for the aggregate effects of tax changes on the real economy.

Keywords: Liquidity constraints; Mortgage debt; Narrative tax changes (search for similar items in EconPapers)
JEL-codes: E21 E62 H31 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-mac, nep-pbe, nep-pub and nep-ure
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Household Debt and the Dynamic Effects of Income Tax Changes (2017)
Working Paper: Household debt and the dynamic effects of income tax changes (2014)
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