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Imputed Rental Income, Taxation and Income Distribution in Finland

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  • Tuukka Saarimaa

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Abstract

In most Western countries, owner-occupied housing is tax-favoured compared with other investments and housing tenure modes. This paper analyses the effects of imputed rental income and its tax treatment on income distribution in Finland. Using household data from the 2004 Wealth Survey produced by Statistics Finland, it is found that imputed rental income has a major effect on homeowners’ well-being as it constitutes on average almost 10 per cent of homeowner households’ disposable income. Furthermore, including imputed rental income in household disposable income decreased overall inequality measured by the Gini index. The tax subsidy resulting from non-taxation of imputed rental income is skewed towards high-income households. However, the effects of a new tax on imputed rental income on overall inequality would depend vitally on the way the increased government tax revenue is transferred back to the households.

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Bibliographic Info

Article provided by Urban Studies Journal Limited in its journal Urban Studies.

Volume (Year): 48 (2011)
Issue (Month): 8 (June)
Pages: 1695-1714

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Handle: RePEc:sae:urbstu:v:48:y:2011:i:8:p:1695-1714

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Web page: http://www.gla.ac.uk/departments/urbanstudiesjournal

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  1. 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.
  2. Linneman, Peter, 1985. "An economic analysis of the homeownership decision," Journal of Urban Economics, Elsevier, vol. 17(2), pages 230-246, March.
  3. Hills, John, 1991. "Distributional effects of housing subsidies in the United Kingdom," Journal of Public Economics, Elsevier, vol. 44(3), pages 321-352, April.
  4. Cremer, Helmuth & Gahvari, Firouz, 1998. "On Optimal Taxation of Housing," Journal of Urban Economics, Elsevier, vol. 43(3), pages 315-335, May.
  5. Joachim R. Frick & Markus M. Grabka, 2003. "Imputed Rent and Income Inequality: A Decomposition Analysis for Great Britain, West Germany and the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(4), pages 513-537, December.
  6. Yannis M. Ioannides & Jeffrey E. Zabel, 2003. "Neighbourhood effects and housing demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 563-584.
  7. Edward L. Glaeser & Jesse M. Shapiro, 2002. "The Benefits of the Home Mortgage Interest Deduction," NBER Working Papers 9284, National Bureau of Economic Research, Inc.
  8. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
  9. Yates, Judith, 1994. "Imputed Rent and Income Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(1), pages 43-66, March.
  10. Katz, Arnold J, 1983. "Valuing the Services of Consumer Durables," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(4), pages 405-27, December.
  11. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
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Cited by:
  1. Tuukka Saarimaa & Mika Kortelainen, 2012. "Do Homeowners Benefit the Neighborhood? Evidence from Semiparametric Hedonic Regressions," ERSA conference papers ersa12p472, European Regional Science Association.
  2. Mika Kortelainen & Tuukka Saarimaa, 2012. "Do Homeowners Benefit Urban Neighborhoods? Evidence from Housing Prices," SERC Discussion Papers 0110, Spatial Economics Research Centre, LSE.

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