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House Prices Drive Current Accounts: Evidence From Property Tax Variations

François Geerolf () and Thomas Grjebine

Working Papers from CEPII research center

Abstract: We study the causal link between house prices and current accounts. Across time and countries, we find a very large and significant impact of house prices on current accounts. In order to rule out endogeneity concerns, we instrument house prices for a panel of countries, using property tax variations. A 10% instrumented appreciation in house prices leads to a deterioration in the current account of 1.7% of GDP. These results are very robust to the inclusion of the determinants of current accounts. Following a house price increase, private savings decrease, through wealth effects rather than consumer-finance based mechanisms, while non-residential investment rises through a relaxation of financing constraints for firms.

Keywords: Current; accounts (search for similar items in EconPapers)
JEL-codes: F32 F36 F40 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-opm and nep-ure
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