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Consumer Spending and Property Taxes

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  • Paolo Surico
  • Riccardo Trezzi

Abstract

A sudden and temporary change to the Italian property tax system in 2011 generated significant variation in the amount of taxes paid across home-owners. Using new questions appositely added to the Survey on Household Income and Wealth, we exploit this cross-sectional variation to provide an unprecedented analysis of the consumption effects of a tax on housing wealth. A tax hike on the main dwelling leads to large expenditure cuts among mortgagors, who hold low liquid wealth despite owning sizable illiquid assets. In contrast, higher tax rates on other residential properties affect affluent households, thereby having a modest impact on their consumer spending. Our results provide novel and direct evidence in favor of recent theories that highlight the role of household debt in the transmission of economic policies.

Suggested Citation

  • Paolo Surico & Riccardo Trezzi, 2019. "Consumer Spending and Property Taxes," Journal of the European Economic Association, European Economic Association, vol. 17(2), pages 606-649.
    • Handle: RePEc:oup:jeurec:v:17:y:2019:i:2:p:606-649.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvy008
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    Cited by:

    1. Stähler, Nikolai, 2019. "Who benefits from using property taxes to finance a labor tax wedge reduction?," Journal of Housing Economics, Elsevier, vol. 46(C).
    2. James Cloyne & Clodomiro Ferreira & Paolo Surico, 2020. "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 102-129.
    3. Edoardo Di Porto & Tommaso Oliviero & Annalisa Tirozzi, 2021. "The economic effects of immovable property taxation: A review of the Italian experience," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2021(1), pages 25-43.
    4. Oliviero, Tommaso & Scognamiglio, Annalisa, 2019. "Property tax and property values: Evidence from the 2012 Italian tax reform," European Economic Review, Elsevier, vol. 118(C), pages 227-251.
    5. Luigi Marattin & Tommaso Nannicini & Francesco Porcelli, 2022. "Revenue vs expenditure based fiscal consolidation: the pass-through from federal cuts to local taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(4), pages 834-872, August.
    6. Shangfa Hou & Jiaying Wang & Degui Zhu, 2022. "Has the Newly Imposed Property Tax Controlled Housing Prices? An Analysis of China’s 2009–2020 Interprovincial Panel Data," Sustainability, MDPI, vol. 14(22), pages 1-18, November.
    7. Corsetti, Giancarlo & Brendon, Charles, 2016. "COEURE Survey: Fiscal and Monetary Policies after the Crises," CEPR Discussion Papers 11088, C.E.P.R. Discussion Papers.

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