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Recent Reforms in Spanish Housing Markets: An Evaluation using a DSGE Model

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  • Juan S Mora-Sanguinetti
  • Margarita Rubio

Abstract

After a long academic debate, Spain finally repealed in 2012 the deduction for home purchase. The abrogation took effect in 2013. In parallel, the VAT for the purchase of new housing was increased after a short period in which it had a reduced rate. The aim of this paper is to assess the macroeconomic effects of these two relevant housing market reforms. In order to do that, we use a dynamic stochastic general equilibrium (DSGE) model calibrated to capture the key ratios of the Spanish economy. The model includes a housing market, covering both the rental market side and the property market side and credit-constrained agents. We find that these measures drive down housing prices and have a negative impact on output and employment in the construction sector. However, in the long run, this last effect is offset by the benefits of a reduction in distortionary taxes.

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Bibliographic Info

Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 2013/03.

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Date of creation: 2013
Date of revision:
Handle: RePEc:not:notcfc:13/03

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Keywords: Housing Market Reforms; Rental Market; House Prices; Home Purchase Deduction; VAT on New Home Purchase;

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References

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  1. David Lopez-Salido & Oscar Arce, 2008. "Housing Bubbles," 2008 Meeting Papers, Society for Economic Dynamics 134, Society for Economic Dynamics.
  2. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics, Boston College Department of Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  3. Eva Ortega & Margarita Rubio & Carlos Thomas, 2011. "House purchase versus rental in Spain," Banco de Espa�a Working Papers, Banco de Espa�a 1108, Banco de Espa�a.
  4. Olivier Blanchard & Jordi Galí, 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 2(2), pages 1-30, April.
  5. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Housing Markets and Structural Policies in OECD Countries," OECD Economics Department Working Papers, OECD Publishing 836, OECD Publishing.
  6. Matteo Iacoviello & Stefano Neri, 2008. "Housing market spillovers: Evidence from an estimated DSGE model," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 659, Bank of Italy, Economic Research and International Relations Area.
  7. Juan Mora-Sanguinetti, 2012. "Is judicial inefficacy increasing the weight of the house property market in Spain? Evidence at the local level," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 3(3), pages 339-365, September.
  8. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(7), pages 1461-1489, October.
  9. Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(1), pages 69-106, February.
  10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
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