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Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment

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  • Surico, P.
  • Trezzi, R.

Abstract

A major change of the property tax system in 2011 generated significant variation in the amount of housing taxes paid by Italian households. Using new questions added to the Survey on Household Income and Wealth (SHIW), we exploit this variation to provide an unprecedented analysis of the effects of property taxes on consumer spending. A tax on the main dwelling leads to large expenditure cuts among households with mortgage debt and low liquid wealth but generates only small revenues for the government. In contrast, higher tax rates on other residential properties reduce private savings and yield large tax revenues.

Suggested Citation

  • Surico, P. & Trezzi, R., 2016. "Consumer Spending and Fiscal Consolidation: Evidence from a Housing Tax Experiment," Cambridge Working Papers in Economics 1648, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1648
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    References listed on IDEAS

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    Cited by:

    1. Bilbiie, Florin Ovidiu & Ragot, Xavier, 2017. "Optimal Monetary Policy and Liquidity with Heterogeneous Households," CEPR Discussion Papers 11814, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Fiscal consolidation; marginal propensity to spend; mortgage debt; residential property taxes;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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