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Fiscal Stimulus and Housing Booms: Evidence from the 2003 Tax Cuts
Xiong, Xun Mihov, Atanas Lin, Leming
Xiong, Xun
Mihov, Atanas
Lin, Leming
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Abstract
This paper examines how the Bush-era tax cuts contributed to the U.S. housing boom that preceded the Great Recession. We focus on the 2003 reductions in dividend and capital gains tax rates and use a difference-in-differences design that exploits cross-county variation in stock market exposure to identify the effects. Counties more exposed to the tax cuts experienced significantly faster house price growth after 2003 and greater housing activity, including home purchases and improvements---particularly for investment properties. We uncover a novel portfolio rebalancing channel linking equity payouts to housing demand, suggesting that the surge in corporate distributions following the tax cuts amplified their impact on house prices. Complementary evidence indicates that the concurrent reduction in regular income taxes also stimulated housing demand. Taken together, the findings imply that the Bush-era tax cuts played a meaningful role in fueling the early-2000s housing boom and highlight housing as an important transmission channel of fiscal stimulus.
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These are> the slides from a presentation given at the 2025 Financial Management Association Annual Meeting held in Vancouver, Canada on 10/23/2025.
Date
2025-10-23
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University of Kansas
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XiongX_2025.pdf
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Keywords
Capital income tax cuts, Jobs and Growth Tax Relief Reconciliation Act, Housing market, House price growth