Global capital markets, housing prices, and partisan fiscal policies

Ben Ansell and Lawrence Broz

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run-ups in house prices while the surplus countries that exported capital exhibited flat or slow house price growth. We argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly-provided social insurance. This is because rising house prices allow homeowners to “self insure” against income losses due to unemployment, illness, and old age. We present survey evidence that supports this claim. Furthermore, we find that responses to house prices are mirrored in capital exporting countries: households become more supportive of both taxes and social insurance as home prices remain flat or decline. Finally, we show that political parties are the mechanisms through which the fiscal preferences of households find policy expression. Taxes and social insurance spending tend to fall (rise) where the right (left) is in power and capital inflows are driving up housing prices. In capital exporting nations, by contrast, we find an attenuation of these partisan fiscal policy outcomes.

Keywords: Sovereign Default; Debt Crises; Political Survival; Networks; Voter Behavior. (search for similar items in EconPapers)
JEL-codes: R21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-02-01
New Economics Papers: this item is included in nep-pol and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://eprints.lse.ac.uk/60930/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:60930

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().