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Taxes and the fundamental value of houses

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  • Madsen, Jakob B.

Abstract

This paper constructs a general equilibrium model of housing prices which can be used to analyze the effects of various taxes on house prices and housing stock. It is shown that taxes have effects on the housing market that are quite different from the effects generated from the conventional user-cost-based models. Empirical estimates for the US show that taxes are highly influential for house prices in the short run as well as in the long run.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 39 (2009)
Issue (Month): 3 (May)
Pages: 365-376

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Handle: RePEc:eee:regeco:v:39:y:2009:i:3:p:365-376

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Keywords: House prices Housing investment Taxes Tobin's q;

References

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  1. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341.
  2. Summers, Lawrence H, 1981. "Inflation, the Stock Market, and Owner-Occupied Housing," American Economic Review, American Economic Association, vol. 71(2), pages 429-34, May.
  3. James M. Poterba, 1991. "House Price Dynamics: The Role of Tax Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 143-204.
  4. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, regulations, and the value of U.S. and U.K. corporations," Staff Report 309, Federal Reserve Bank of Minneapolis.
  5. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Osterberg, William P., 1989. "Tobin's q, investment, and the endogenous adjustment of financial structure," Journal of Public Economics, Elsevier, vol. 40(3), pages 293-318, December.
  7. Jakob B Madsen & E Philip Davis, 2006. "Equity Prices, Productivity Growth and 'The New Economy'," Economic Journal, Royal Economic Society, vol. 116(513), pages 791-811, 07.
  8. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Land use regulation and new construction," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 639-662, December.
  9. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
  10. Akdeniz, Levent & Dechert, W. Davis, 2007. "The equity premium in Brock's asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 31(7), pages 2263-2292, July.
  11. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Jakob B Madsen, 2011. "A q Model of House Prices," Development Research Unit Working Paper Series 03-11, Monash University, Department of Economics.
  13. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
  14. Dougherty, Ann & Van Order, Robert, 1982. "Inflation, Housing Costs, and the Consumer Price Index," American Economic Review, American Economic Association, vol. 72(1), pages 154-64, March.
  15. N. Gregory Mankiw & David N. Weil, 1988. "The Baby Boom, The Baby Bust, and the Housing Market," NBER Working Papers 2794, National Bureau of Economic Research, Inc.
  16. Margaret Hwang Smith & Gary Smith, 2006. "Bubble, Bubble, Where's the Housing Bubble?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(1), pages 1-68.
  17. Meen, Geoffrey, 2002. "The Time-Series Behavior of House Prices: A Transatlantic Divide?," Journal of Housing Economics, Elsevier, vol. 11(1), pages 1-23, March.
  18. John H. Cochrane, 1988. "Production Based Asset Pricing," NBER Working Papers 2776, National Bureau of Economic Research, Inc.
  19. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  20. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
  21. Davis, E. Philip & Madsen, Jakob B., 2008. "Productivity and equity market fundamentals: 80 years of evidence for 11 OECD countries," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1261-1283, December.
  22. Kearl, J R, 1979. "Inflation, Mortgages, and Housing," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1115-38, October.
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Cited by:
  1. Sarah J. Carrington & Jakob B. Madsen, 2009. "House Prices, Credit and Willingness to Lend," Development Research Unit Working Paper Series 23-09, Monash University, Department of Economics.
  2. Jakob B Madsen, 2011. "A Repayment Model of House Prices," Development Research Unit Working Paper Series 09-11, Monash University, Department of Economics.
  3. Madsen, Jakob B., 2012. "A behavioral model of house prices," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 21-38.

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