ESRI Working Paper

The Housing Net Worth Channel and the Public Finances: Evidence from a European Country Panel

ESRI working papers represent un-refereed work-in-progress by researchers who are solely responsible for the content and any views expressed therein. Any comments on these papers will be welcome and should be sent to the author(s) by email. Papers may be downloaded for personal use only.

July 21, 2022
Attachment Size
Download PDF 922.26 KB

In the growing literature on the importance of household balance sheets to macroeconomic developments, the relationship between housing wealth and fiscal outturns needs consideration given the likely links between housing market developments and particular tax headings.  We adopt the housing net worth model for this purpose.   Using a panel dataset of 18 European countries over the period 1998 to 2017, we find changes in housing net worth having a significant impact on the primary budget balance, with increases (decreases) in housing net worth causing the budget balance to improve (dis-improve).   Further support for the importance of this channel to the public finances arises by differentiating observations based on the amount of revenue raised under particular tax headings.