Tax Changes, Macroeconomics and Housing
USC Lusk Center for Real Estate Research Seminar Series
University of California, Los Angeles
This paper uses property tax changes to analyze the effects of aggregate tax changes on the macroeconomy, calculate tax multipliers, and study the link between housing and macroeconomics. We argue that using property taxes has three advantages. First, property taxes are usually considered to be the least distortive of all taxes, thereby allowing to isolate disposable income effects, while keeping supply effects at a minimum. Second, the base for the property tax is not contemporaneously affected by GDP, unlike all other tax revenues, which allows to use a structural VAR approach without making questionable assumptions on how to cyclically adjust revenues. Third, we can perform an extensive narrative study to check the robustness of our structural VAR estimates, and identify the motivation for the “shocks” that we identify. We show that many of these motivations are indeed reasonably exogenous to the macroeconomy. Both the narrative and structural approaches lead to quite similar results: we estimate tax multipliers in the high range of typical time-series estimates, but closer to cross-sectional estimates (higher than 2). Finally, property tax changes inform on a growing literature concerned with the effects of house prices in general equilibrium. Our analysis suggests that the large effects on consumption (“housing wealth effects”) and investment (“collateral channel”), attributed to changes in house prices in partial equilibrium, may result from common shocks to macroeconomic aggregates and house prices, such as property tax shocks. Property taxes are only one example of the various taxes or subsidies related to home ownership.
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