CEPII, Recherche et Expertise sur l'economie mondiale
House Prices Drive Current Accounts: Evidence From Property Tax Variations

François Geerolf
Thomas Grjebine

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 Abstract :
We study the causal link between house prices and current accounts. Across time and countries, we find a very large and significant impact of house prices on current accounts. In order to rule out endogeneity concerns, we instrument house prices for a panel of countries, using property tax variations. A 10% instrumented appreciation in house prices leads to a deterioration in the current account of 1.7% of GDP. These results are very robust to the inclusion of the determinants of current accounts. Following a house price increase, private savings decrease, through wealth effects rather than consumer-finance based mechanisms, while non-residential investment rises through a relaxation of financing constraints for firms.

 Keywords : Current accounts

 JEL : F32, F36, F40
CEPII Working Paper
N°2013-18, June 2013

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