Fiscal policy effects on house prices and credit market conditions: empirical evidence from Italian NUTS-2 regional data

Abstract

We study the effects of fiscal policy shocks on housing and credit market conditions using a Bayesian Panel Vector Autoregressive model (VAR) fitted to Italian regional data over 2004–2019. The focus on NUTS2 data and the use of time fixed effect allows to treat aggregate shocks as exogenous variable and to focus only on the identification of local government spending and tax shocks. The empirical evidence suggests rising house prices and improvement in access to credit for households due to expansionary fiscal policy. The evidence of a positive effect on house prices and credit market conditions is limited to regions with a higher level of economic and banking sector development. Finally, the empirical evidence points to a counter-cyclical role played by fiscal policy over the Global Financial Crisis period.