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Consumer spending and fiscal consolidation: evidence from a housing tax experiment

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  • Surico, Paolo
  • Trezzi, Riccardo

Abstract

The introduction of a temporary housing tax as prominent part of the 2011 fiscal consolidation plan generated a sizable quasi-experiment across Italian municipalities and households, which we exploit to study the effects of this policy on consumer spending. The tax hike on the main dwelling led to large expenditure cuts (especially on vehicle purchases) among mortgagors, who hold low liquid wealth relative to income despite owning sizable illiquid assets. In contrast, higher tax rates on other residential properties mostly affected affluent home-owners, thereby having only a negligible impact on consumer spending.

Suggested Citation

  • Surico, Paolo & Trezzi, Riccardo, 2016. "Consumer spending and fiscal consolidation: evidence from a housing tax experiment," CEPR Discussion Papers 11735, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11735
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    Cited by:

    1. Florin Bilbiie & Xavier Ragot, 2021. "Optimal Monetary Policy and Liquidity with Heterogeneous Households," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 71-95, July.
    2. repec:hal:spmain:info:hdl:2441/j75mfllkr89c8aod1nr586ksc is not listed on IDEAS
    3. Bilbiie, Florin, 2018. "Monetary Policy and Heterogeneity: An Analytical Framework," CEPR Discussion Papers 12601, C.E.P.R. Discussion Papers.
    4. Javier Andrés & José E. Boscá & Javier Ferri & Cristina Fuentes‐Albero, 2022. "Households' Balance Sheets and the Effect of Fiscal Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 737-778, June.
    5. repec:spo:wpecon:info:hdl:2441/j75mfllkr89c8aod1nr586ksc is not listed on IDEAS
    6. repec:spo:wpmain:info:hdl:2441/j75mfllkr89c8aod1nr586ksc is not listed on IDEAS
    7. repec:hal:wpspec:info:hdl:2441/j75mfllkr89c8aod1nr586ksc is not listed on IDEAS

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    More about this item

    Keywords

    Fiscal consolidation; Tax hike; Housing taxes; Marginal propensity to consume; Mortgage debt;
    All these keywords.

    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; Modern Monetary Theory

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