Consumer spending and fiscal consolidation: evidence from a housing tax experiment

Paolo Surico and Riccardo Trezzi

No 11735, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Fiscal consolidation; Tax hike; Housing taxes; Marginal propensity to consume; Mortgage debt (search for similar items in EconPapers)
JEL-codes: E21 E62 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-ure
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment (2016)
Working Paper: Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment (2015)
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