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Bubble on real estate: the role of altruism and fiscal policy

Author

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  • Clain-Chamosset-Yvrard Lise

    (Univ. Lyon, Université Lumière Lyon 2, GATE UMR 5824,, F-69130 Ecully, France)

  • Seegmuller Thomas

    (Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE, Marseille, France)

Abstract

In this paper, we are interested in the interplay between real estate bubble, aggregate capital accumulation and taxation in an overlapping generations economy with altruistic households. We consider a three-period overlapping generations model with three key elements: altruism, portfolio choice, and financial market imperfections. Households realise different investment decisions in terms of asset at different periods of life, face a binding borrowing constraint and leave bequests to their children. We show that altruism plays a key role on the existence of a productive real estate bubble, i.e. a bubble in real estate raising physical capital stock and aggregate output. The key mechanism relies on the fact that a real estate bubble raises income of retired households. Because of higher bequests, there children are able to invest more in productive capital. Introducing fiscal policy, we show that raising real estate taxation dampens capital accumulation.

Suggested Citation

  • Clain-Chamosset-Yvrard Lise & Seegmuller Thomas, 2019. "Bubble on real estate: the role of altruism and fiscal policy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(4), pages 1-18, September.
    • Handle: RePEc:bpj:sndecm:v:23:y:2019:i:4:p:18:n:3
    DOI: 10.1515/snde-2019-0020
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    More about this item

    Keywords

    altruism; bubble; credit; overlapping generations; real estate;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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