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Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence

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  • Paul van den Noord

Abstract

A problem associated with inflation differentials in monetary unions is that the “crowding-in” effect of lower real interest rates associated with high inflation will initially outweigh the loss of competitiveness (crowding out). The crowding-in effect may produce volatility in house prices, especially if tax regimes favour the occurrence of bubbles. This paper shows that this is the case notably in the smaller countries of the euro area, and this could explain the persistence of inflation differentials in the area to some extent ... Incitations fiscales et volatilité des prix d'immobilier dans la zone euro : Théorie et évidence Un problème dû aux différences d'inflation en union monétaire est que, initialement, l'effet stimulant de taux d'intérêt bas venant des taux d'inflation élevés l'emporte sur l'effet perte de compétitivité. L'effet stimulant peut produire une volatilité accrue des prix d'immobilier, surtout lorsque le régime fiscal tend à favoriser l'émergence de bulles. Ce papier démontre que c'est en effet le cas, notamment dans les plus petits pays de la zone euro, ce qui peut expliquer en partie la persistance des différentiels d'inflation dans la zone euro ...

Suggested Citation

  • Paul van den Noord, 2003. "Tax Incentives and House Price Volatility in the Euro Area: Theory and Evidence," OECD Economics Department Working Papers 356, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:356-en
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    File URL: http://dx.doi.org/10.1787/410243688730
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    Keywords

    Economic and Monetary Union; fiscalité; taxation; Union économique et monétaire;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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