Publication type
Research Paper
Series Number
491
Series
Bank of England Working Paper Series
Authors
Publication date
March 15, 2014
Summary:
Using a long span of expenditure survey data and a new narrative measure
of exogenous income tax changes for the United Kingdom, we show that
households with mortgage debt exhibit large and persistent consumption
responses to changes in their income. Homeowners without a mortgage, in
contrast, do not appear to react, with responses not statistically
different from zero at all horizons. Splitting the sample by age and
education yields more limited evidence of heterogeneity as the
distributions of these demographics tend to overlap across housing
tenure groups. We interpret our findings through the lens of traditional
and more recent theories of liquidity constraints, providing a novel
interpretation for the aggregate effects of tax changes on the economy.
ISSN
17499135
Subjects
Link
http://www.bankofengland.co.uk/research/Pages/workingpapers/2014/wp491.aspx
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