Inequality hikes, saving surges, and housing bubbles

摘要

This paper uses theoretical and empirical models to analyze the effect of saving rates on housing prices under income inequality observed in fast-growing tourism resorts like Macao. The theoretical model predicts that rising inequality leads to larger asset bubbles through a higher rate of saving and a greater investment of saving in housing assets. The empirical model confirms that tourism growth and inequality spurt do foster saving surge and housing bubble. This work on Macao also shows that aggressive operation of VIP tourism and excessive use of foreign investment may be no good for economic efficiency and social equity. It is necessary for Macao to make full use of its ample public saving to pursue sustainable tourism development and autonomous economic growth. The government should spend a substantial portion of its idle saving to deal with social discontent over low real income and low housing affordability and to prevent social tensions from arising in Macao.