TY - CEPII
A1 - François Geerolf
A1 - Thomas Grjebine
TI - House Prices Drive Current Accounts: Evidence From Property Tax Variations
IS - 2013-18
T3 - Working Papers
KW - Current accounts
N2 - 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.
ER -