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On the Political Economy of Housing's Tax Status

Author

Listed:
  • Eerola Essi

    (University of Helsinki)

  • Määttänen Niku

    (The Research Institute of the Finnish Economy)

Abstract

Most households have most of their wealth in the form of housing. We analyze how this distributional feature shapes the political economy of housing taxation. We build a simple dynamic general equilibrium model where households vote over the tax treatment of housing and business capital. The model is calibrated so as to match the joint distribution of financial wealth and housing wealth among US households. The median voter has a large share of his wealth in the form of housing and most of his income is wage earnings. The key trade-off he faces is that lowering the tax burden on business capital while increasing the tax burden on housing leads to higher wages but also increases his own share of the overall tax burden.

Suggested Citation

  • Eerola Essi & Määttänen Niku, 2006. "On the Political Economy of Housing's Tax Status," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-32, September.
    • Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:2:n:7
    DOI: 10.2202/1534-5998.1393
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    References listed on IDEAS

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    1. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    2. Essi Eerola & Niku Määttänen, 2013. "The Optimal Tax Treatment of Housing Capital in the Neoclassical Growth Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(6), pages 912-938, December.
    3. Broadbent, Ben & Kremer, Michael, 2001. "Does favorable tax-treatment of housing reduce non-housing investment?," Journal of Public Economics, Elsevier, vol. 81(3), pages 369-391, September.
    4. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
    5. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-242, May.
    6. Fullerton, Don, 1987. "The indexation of interest, depreciation, and capital gains and tax reform in the United States," Journal of Public Economics, Elsevier, vol. 32(1), pages 25-51, February.
    7. Hendershott, Patric H. & Won, Yunhi, 1992. "Introducing risky housing and endogenous tenure choice into a portfolio-based general equilibrium model," Journal of Public Economics, Elsevier, vol. 48(3), pages 293-316, August.
    8. Berkovec, James & Fullerton, Don, 1992. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 390-429, April.
    9. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
    10. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
    11. repec:zbw:bofrdp:2005_010 is not listed on IDEAS
    12. Patric H. Hendershott & Michael White, 2000. "Taxing and Subsidizing Housing Investment: The Rise and Fall of Housing's Favored Status," NBER Working Papers 7928, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Tuukka Saarimaa, 2011. "Imputed Rental Income, Taxation and Income Distribution in Finland," Urban Studies, Urban Studies Journal Limited, vol. 48(8), pages 1695-1714, June.
    2. Essi Eerola, 2019. "Macroprudential Measures and Taxation in the Housing Markets," EconPol Policy Brief 17, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Saarimaa, Tuukka, 2008. "Imputed Rental Income, Taxation and Income Distribution in Finland," Discussion Papers 446, VATT Institute for Economic Research.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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