1. The Impact of Fiscal Policy on Residential Investment in France Pamfili Antipa, Christophe Schalck The Macroeconomics of Housing Markets Paris, 3 rd of December 2009

2. Outline of the presentation 1.Fiscal intervention on the French housing market 2.Methodology 3.Empirical results 4.Conclusive remarks

3. Overview of the housing market (1)

4. Overview of the housing market (2) Subsidies’ growth rate fluctuates with residential investment Declining GDP / investment share Three categories: tax, interest rate and financial subsidies Housing subsidies

5. Overview of the housing market (3) Cyclical pattern Increasing GDP/ investment share Two categories: indirect and property taxes Housing taxes

6. The methodology (1) Data: –National accounts and French ministry of housing. –1984 – 2006 period. Considered variables: –Endogenous: residential investment, permanent income, households’ borrowing capacity, fiscal variables –Exogenous: housing prices, interest rates

7. The methodology (2) VECM Partly accounts for endogeneity Allows for more than one error correction mechanism Estimation procedure as in Lütkepohl (2004) All series are first order integrated Number of lags fixed by AIC Determination of cointegration rank (whole system and pairs of variables) 1 cointegration relationship

8. Empirical results (1) Standard Specification Long run Short run

9. Empirical results (2) Standard Specification

10. Empirical results (3) What about the borrowing capacity?

11. Empirical results (4) Which type of subsidy to use?

12. Conclusive remarks Subsidies (especially tax subsidies) can play a role for the stabilisation of residential investment and hence the business cycle  should be the main tool of fiscal policy; Taxes are not significant in the long run; These results are robust over different specifications, including when households’ borrowing capacity is taken on board; Results should nonetheless be interpreted cautiously, as data sample is relatively short.