CEPII, Recherche et Expertise sur l'economie mondiale
Property Tax Shocks and Macroeconomics


François Geerolf
Thomas Grjebine

 Highlights :
  • We study the macroeconomic effects of aggregate tax changes using more than 100 property tax changes in advanced economies identified through the narrative record, and a structural VAR approach.
  • Both methodologies lead to very similar estimates of tax multipliers that are higher than two.
  • Property taxes are the least distortive of all taxes, which allows to interpret our tax multipliers in terms of Keynesian disposable income effects, and not in terms of supply-side, incentive effects.
  • A tax cut leads to higher consumption and investment but deteriorates the country’s external balance and competitiveness.
  • Our results inform more broadly on the links between housing and macroeconomics and suggest that housing wealth effects and collateral effects of house prices on consumption and investment are lower than was previously believed.

 Abstract :
We study the macroeconomic effects of aggregate tax changes using more than 100 property tax changes in advanced economies identified through the narrative record, and a structural VAR approach. Both methodologies lead to very similar estimates of tax multipliers that are higher than 2. The motivation behind using property taxes is threefold. First, property taxes are in theory the least distortive of all taxes, which allows to interpret our tax multipliers in terms of disposable income effects, and not in terms of supply or incentive effects. Second, the base for property taxes is not contemporaneously affected by GDP, unlike other major tax revenues, which considerably eases inference both in the narrative and in the structural VAR approaches. Third, the effects of property tax changes inform more broadly on the consequences of policies shifting the user cost of owner-occupied housing (including monetary policy). It casts a new light on a growing literature investigating the links between housing and macroeconomics: our results suggest that house prices have a much more muted impact on macroeconomic aggregates than was previously believed.

 Keywords : Multipliers | Consumption | User cost of housing

 JEL : E32, E62, H20, N12
CEPII Working Paper
N°2018-03, March 2018

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