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

  • Juan S Mora-Sanguinetti
  • Margarita Rubio

After a long academic debate, Spain finally repealed in 2012 the deduction for home purchase.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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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
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Handle: RePEc:not:notcfc:13/03
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  1. Horvath, Michael, 2000. "Sectoral shocks and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 69-106, February.
  2. Matteo Iacoviello & Stefano Neri, 2007. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," Boston College Working Papers in Economics 659, Boston College Department of Economics, revised 23 Oct 2009.
  3. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
  4. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
  5. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
  6. Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
  7. Óscar Arce & David López-Salido, 2011. "Housing Bubbles," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 212-41, January.
  8. 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, vol. 3(3), pages 339-365, September.
  9. Miguel-Angel Lopez-Garcia, 2004. "Housing, prices and tax policy in Spain," Spanish Economic Review, Springer, vol. 6(1), pages 29-52, April.
  10. Dan Andrews & Aida Caldera Sánchez & Åsa Johansson, 2011. "Housing Markets and Structural Policies in OECD Countries," OECD Economics Department Working Papers 836, OECD Publishing.
  11. Olivier Blanchard & Jordi Gali, 2008. "Labor Markets and Monetary Policy: A New-Keynesian Model with Unemployment," NBER Working Papers 13897, National Bureau of Economic Research, Inc.
  12. Eva Ortega & Margarita Rubio & Carlos Thomas, 2011. "House purchase versus rental in Spain," Banco de Espa�a Working Papers 1108, Banco de Espa�a.
  13. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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