Working Paper: NBER ID: w26457
Authors: Zhenyu Gao; Michael Sockin; Wei Xiong
Abstract: By exploiting variation in state capital gains taxation as an instrument, we analyze the economic consequences of housing speculation during the U.S. housing boom in the 2000s. We find that housing speculation, anchored, in part, on extrapolation of past housing price changes, led not only to greater price appreciation, economic expansions, and housing construction during the boom in 2004-2006, but also to more severe economic downturns during the subsequent bust in 2007-2009. Our analysis supports supply overhang and local household demand as two key channels for transmitting these adverse effects.
Keywords: housing speculation; economic consequences; capital gains taxation; housing boom; housing bust
JEL Codes: E3; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased housing construction during the boom (R31) | Job losses in the construction sector during the bust (L74) |
| Fluctuations in household wealth due to speculation (G59) | Employment in nontradable sectors (J49) |
| Housing speculation (fraction of nonowner-occupied home purchases) (R21) | Housing prices (R31) |
| Housing speculation (fraction of nonowner-occupied home purchases) (R21) | Local economic activity (R11) |