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Housing policy and the progressivity of income taxation

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  • Chambers, Matthew
  • Garriga, Carlos
  • Schlagenhauf, Don E.

Abstract

Most countries have tax provisions and subsidies to promote homeownership. These provisions generate an asymmetry in the tax treatment of owner- and rental-occupied housing, which affects the incentives to supply tenant-occupied housing. This paper analyzes the quantitative importance of the interaction of these provisions with the progressivity of income taxation in the context of an overlapping generations model with housing and rental markets. The model replicates the key facts observed in the economy, as well as distributional patterns of ownership, house size, and landlord behavior. The model suggests that the progressivity of income taxation can amplify or mitigate the effects of the asymmetries with important implications for housing tenure, housing consumption, portfolio reallocations, and welfare that differ from those reported in the literature.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 56 (2009)
Issue (Month): 8 (November)
Pages: 1116-1134

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Handle: RePEc:eee:moneco:v:56:y:2009:i:8:p:1116-1134

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Incomplete markets Heterogeneous consumers;

References

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  1. James Berkovec & Don Fullerton, 1993. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," NBER Working Papers 3505, National Bureau of Economic Research, Inc.
  2. Conesa, Juan Carlos & Krüger, Dirk, 2005. "On the Optimal Progressivity of the Income Tax Code," CEPR Discussion Papers 5040, C.E.P.R. Discussion Papers.
  3. Matthew Chambers & Carlos Garriga, 2005. "Accounting for Changes in the Homeownership Rate," Computing in Economics and Finance 2005 304, Society for Computational Economics.
  4. Rosen, Harvey S & Rosen, Kenneth T, 1980. "Federal Taxes and Homeownership: Evidence from Time Series," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 59-75, February.
  5. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  6. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2002. "Consumption and Risk Sharing Over the Life Cycle," Seminar Papers 702, Stockholm University, Institute for International Economic Studies.
  7. Gouveia, Miguel & Strauss, Robert P., 1994. "Effective Federal Individual Tax Functions: An Exploratory Empirical Analysis," National Tax Journal, National Tax Association, vol. 47(2), pages 317-39, June.
  8. Karsten Jeske & Dirk Krueger, 2005. "Housing and the macroeconomy: the role of implicit guarantees for government-sponsored enterprises," Working Paper 2005-15, Federal Reserve Bank of Atlanta.
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Citations

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Cited by:
  1. Matteo Iacoviello & Marina Pavan, 2011. "Housing and debt over the life cycle and over the business cycle," International Finance Discussion Papers 1032, Board of Governors of the Federal Reserve System (U.S.).
  2. Matthew Chambers & Carlos Garriga & Donald E. Schlagenhauf, 2013. "Did Housing Policies Cause the Postwar Boom in Homeownership?," NBER Working Papers 18821, National Bureau of Economic Research, Inc.
  3. Carlos Garriga, 2010. "The Role of Construction in the Housing Boom and Bust in Spain," Working Papers 2010-09, FEDEA.
  4. Robert F. Martin & Don Schlagenhauf & Carlos Garriga, 2010. "Housing Boom and Bust Cycles," 2010 Meeting Papers 1080, Society for Economic Dynamics.
  5. Yanbin Chen & Fangxing Li & Zhesheng Qiu, 2013. "Housing and Saving with Finance Imperfection," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 207-248, May.
  6. Makoto Nakajima, 2010. "Optimal capital income taxation with housing," Working Papers 10-11, Federal Reserve Bank of Philadelphia.
  7. Sami Alpanda & Sarah Zubairy, 2013. "Housing and Tax Policy," Working Papers 13-33, Bank of Canada.
  8. Sommer, Kamila & Sullivan, Paul & Verbrugge, Randal, 2013. "The equilibrium effect of fundamentals on house prices and rents," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 854-870.
  9. Grochuluski & Borys, 2011. "Optimal contracts for housing services purchases," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 67-93.
  10. Sang-Wook Stanley Cho & Johanna Francis, 2008. "Tax Treatment of Owner Occupied Housing and Wealth Inequality," Fordham Economics Discussion Paper Series dp2008-17, Fordham University, Department of Economics.
  11. Shaofeng Xu, 2013. "An Equilibrium Analysis of the Rise in House Prices and Mortgage Debt," Working Papers 13-9, Bank of Canada.
  12. Rodolfo Manuelli & Adrian Peralta-Alva & Carlos Garriga, 2012. "Bubbles or Fundamentals? Understanding Boom and Bust Episodes in the Housing Market," 2012 Meeting Papers 937, Society for Economic Dynamics.

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