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Impact of Fiscal Policy on Residential Investment in France

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  • Antipa, P.
  • Schalck, C.

Abstract

The present paper assesses the impact of fiscal policy on residential investment in France. The analysis is conducted in the framework of a VECM, since this allows accounting for endogeneity between the variables. Our results imply that a long term relationship between investment and subsidies exists, making subsidies an adequate measure to influence residential investment and hence the business cycle. In addition, a disaggregated approach taking into account several different types of fiscal measures highlights that tax and interest rate subsidies are the most efficient fiscal tool for influencing residential investment. When accounting for financial factors by means of households' borrowing capacity, we find that the latter also impacts residential investment positively. Moreover, this alternative specification underlines the robustness of the above mentioned results, as it confirms subsidies as the most efficient measure to influence residential investment.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 270.

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Length: 30 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bfr:banfra:270

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Web page: http://www.banque-france.fr/
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Related research

Keywords: Fiscal policy; residential investment; VECM.;

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References

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  1. Chu-Chia Lin & Sue-Jing Lin, 1999. "An Estimation of Elasticities of Consumption Demand and Investment Demand for Owner-Occupied Housing in Taiwan : A Two-Period Model," International Real Estate Review, Asian Real Estate Society, vol. 2(1), pages 110-125.
  2. Ricardo M. Sousa & António Afonso, 2008. "Fiscal Policy, Housing and Stock Prices," NIPE Working Papers 21/2008, NIPE - Universidade do Minho.
  3. Edward E. Leamer, 2008. "What's a Recession, Anyway?," NBER Working Papers 14221, National Bureau of Economic Research, Inc.
  4. Jeffrey R. Campbell & Zvi Hercowitz, 2005. "The Role of Collateralized Household Debt in Macroeconomic Stabilization," NBER Working Papers 11330, National Bureau of Economic Research, Inc.
  5. Nathalie Girouard & Sveinbjörn Blöndal, 2001. "House Prices and Economic Activity," OECD Economics Department Working Papers 279, OECD Publishing.
  6. John Muellbauer & Anthony Murphy, 2008. "Housing markets and the economy: the assessment," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 1-33, spring.
  7. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  8. Davis, Morris & Heathcote, Jonathan, 2001. "Housing and the Business Cycle," Working Papers 01-09, Duke University, Department of Economics.
  9. Miles, David K, 1993. "House Prices, Personal Sector Wealth and Consumption: Some Conceptual and Empirical Issues," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(0), pages 35-59, Suppl..
  10. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
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Cited by:
  1. Luis J. Álvarez & Guido Bulligan & Alberto Cabrero & Laurent Ferrara & Harald Stahl, 2010. "Housing Cycles In The Major Euro Area Countries," Banco de Espa�a Occasional Papers 1001, Banco de Espa�a.

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