House Prices Drive Current Accounts: Evidence from Property Tax Variations
François Geerolf () and
No 1315, CEPREMAP Working Papers (Docweb) from CEPREMAP
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)
Pages: 46 pages
New Economics Papers: this item is included in nep-opm and nep-ure
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Working Paper: House Prices Drive Current Accounts: Evidence From Property Tax Variations (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:docweb:1315
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