The tax system and housing demand in New Zealand
AbstractThis paper characterises the relationship between wealth and consumption in New Zealand. We find that there exists a long-run cointegration relation between household consumption, income, housing wealth and net financial wealth. Permanent shocks account for most of the variation in wealth. This implies that our cointegration estimates accurately capture the effect of most wealth changes, in contrast with the findings of Lettau and Ludvigson (2004) for the United States. Our estimates suggest that consumption has adjusted sluggishly to restore longrun equilibrium, but also that consumption booms have anticipated equilibrium-restoring increases in housing wealth. Furthermore, we estimate two alternative econometric models which are more robust to instability in the long-run relationship. All three of our models suggest that permanent changes in wealth have economically important effects on consumption. The dollar-for dollar-effect of financial wealth exceeds that of housing wealth.
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Bibliographic InfoPaper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2008/06.
Length: 21 p.
Date of creation: Feb 2008
Date of revision:
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-24 (All new papers)
- NEP-MAC-2008-05-24 (Macroeconomics)
- NEP-URE-2008-05-24 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Emmanuel De Veirman & Ashley Dunstan, 2008. "How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/05, Reserve Bank of New Zealand.
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"Taxation and Housing: Old Questions, New Answers,"
American Economic Review,
American Economic Association, vol. 82(2), pages 237-42, May.
- Roger H. Gordon, 2003.
"Taxation of Interest Income,"
NBER Working Papers
9503, National Bureau of Economic Research, Inc.
- Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
- Robert A. Buckle & Aaron Drew, 2008. "The business cycle, housing and the role of policy: summary of a recent conference held by The Treasury and the Reserve Bank of New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, March.
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