IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/14144.html
   My bibliography  Save this paper

Optimal Taxation with Homeownership and Wealth Inequality

Author

Listed:
  • Reichlin, Pietro
  • Borri, Nicola

Abstract

We consider optimal taxation in a model with wealth-poor and wealth-rich households, where wealth derives from business capital and homeownership, and investigate the consequences on these tax rates of a rising wealth inequality at steady state. The optimal tax structure includes some taxation of labor, zero taxation of financial and business capital, a housing wealth tax on the wealth-rich households and a housing subsidy on the wealth-poor households. When wealth inequality increases, the optimal balance between labor and housing wealth taxes depends on the source of the increasing wealth.

Suggested Citation

  • Reichlin, Pietro & Borri, Nicola, 2019. "Optimal Taxation with Homeownership and Wealth Inequality," CEPR Discussion Papers 14144, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14144
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP14144
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    2. Thomas Piketty & Emmanuel Saez, 2013. "A Theory of Optimal Inheritance Taxation," Econometrica, Econometric Society, vol. 81(5), pages 1851-1886, September.
    3. Borri, Nicola & Reichlin, Pietro, 2018. "The housing cost disease," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 106-123.
    4. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
    5. Chari, V.V. & Kehoe, Patrick J., 1999. "Optimal fiscal and monetary policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 26, pages 1671-1745, Elsevier.
    6. Jack Favilukis & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2017. "The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 140-223.
    7. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    8. Emmanuel Saez & Stefanie Stantcheva, 2016. "Generalized Social Marginal Welfare Weights for Optimal Tax Theory," American Economic Review, American Economic Association, vol. 106(1), pages 24-45, January.
    9. Serena Fatica & Doris Prammer, 2018. "Housing and the Tax System: How Large Are the Distortions in the Euro Area?," Fiscal Studies, John Wiley & Sons, vol. 39(2), pages 299-342, June.
    10. Odran Bonnet & Guillaume Flamerie de La Chapelle & Alain Trannoy & Etienne Wasmer, 2019. "Secular Trends in Wealth and Heterogeneous Capital: Land is Back... and Should Be Taxed," Working Papers hal-03570837, HAL.
    11. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2022. "Behavioral Responses to Wealth Taxes: Evidence from Switzerland," American Economic Journal: Economic Policy, American Economic Association, vol. 14(4), pages 111-150, November.
    12. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2018. "Distributional National Accounts: Methods and Estimates for the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 553-609.
    13. Piazzesi, Monika & Schneider, Martin & Tuzel, Selale, 2007. "Housing, consumption and asset pricing," Journal of Financial Economics, Elsevier, vol. 83(3), pages 531-569, March.
    14. repec:hal:wpspec:info:hdl:2441/1eob9f9aas9q18hfjsiqhggvi2 is not listed on IDEAS
    15. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    16. Gahvari, Firouz, 1984. "Incidence and efficiency aspects of differential taxation of residential and industrial capital in a growing economy," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 211-233, November.
    17. Thomas Piketty & Gabriel Zucman, 2014. "Capital is Back: Wealth-Income Ratios in Rich Countries 1700–2010," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1255-1310.
    18. David Seim, 2017. "Behavioral Responses to Wealth Taxes: Evidence from Sweden," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 395-421, November.
    19. Reichlin, Pietro & Borri, Nicola, 2018. "Wealth Taxes and Inequality," CEPR Discussion Papers 13067, C.E.P.R. Discussion Papers.
    20. Saez, Emmanuel & Stantcheva, Stefanie, 2018. "A simpler theory of optimal capital taxation," Journal of Public Economics, Elsevier, vol. 162(C), pages 120-142.
    21. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
    22. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 729-752.
    23. Andres Erosa & Martin Gervais, 2001. "Optimal taxation in infinitely-lived agent and overlapping generations models : a review," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 23-44.
    24. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
    25. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2016. "Taxing Wealth: Evidence from Switzerland," CESifo Working Paper Series 5966, CESifo.
    26. Andrew Atkeson & V. V. Chari & Patrick J. Kehoe, 1999. "Taxing capital income: a bad idea," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Sum), pages 3-17.
    27. Charles I. Jones, 2015. "Pareto and Piketty: The Macroeconomics of Top Income and Wealth Inequality," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 29-46, Winter.
    28. Matteo Iacoviello, 2011. "Housing wealth and consumption," International Finance Discussion Papers 1027, Board of Governors of the Federal Reserve System (U.S.).
    29. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages 374-403, June.
    30. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
    31. Sami Alpanda & Sarah Zubairy, 2016. "Housing and Tax Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 485-512, March.
    32. repec:hal:spmain:info:hdl:2441/1eob9f9aas9q18hfjsiqhggvi2 is not listed on IDEAS
    33. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    34. repec:hal:spmain:info:hdl:2441/56k383m9o9kpb1g6f8rvv74ok is not listed on IDEAS
    35. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sector Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 820-835, October.
    36. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2016. "Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality," American Economic Review, American Economic Association, vol. 106(5), pages 651-655, May.
    37. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    38. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 519-578.
    39. Gianni La Cava, 2016. "Housing prices, mortgage interest rates and the rising share of capital income in the United States," BIS Working Papers 572, Bank for International Settlements.
    40. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    41. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Spencer Bastani & Sebastian Koehne, 2022. "How Should Consumption Be Taxed?," CESifo Working Paper Series 10038, CESifo.
    2. Moore, Rachel & Pecoraro, Brandon, 2021. "Quantitative Analysis of a Wealth Tax in the United States: Exclusions, Evasion, and Expenditures," MPRA Paper 109120, University Library of Munich, Germany.
    3. Bonnet, Odran & Chapelle, Guillaume & Trannoy, Alain & Wasmer, Etienne, 2021. "Land is back, it should be taxed, it can be taxed," European Economic Review, Elsevier, vol. 134(C).
    4. Shulu Che & Ronald Ravinesh Kumar & Peter J. Stauvermann, 2021. "Taxation of Land and Economic Growth," Economies, MDPI, vol. 9(2), pages 1-20, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicola Borri & Pietro Reichlin, 2021. "Optimal Taxation with Home Ownership and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 64-84, April.
    2. Reichlin, Pietro & Borri, Nicola, 2018. "Wealth Taxes and Inequality," CEPR Discussion Papers 13067, C.E.P.R. Discussion Papers.
    3. Spencer Bastani & Daniel Waldenström, 2020. "How Should Capital Be Taxed?," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 812-846, September.
    4. Emmanuel Saez & Gabriel Zucman, 2019. "Progressive Wealth Taxation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 50(2 (Fall)), pages 437-533.
    5. Saez, Emmanuel & Stantcheva, Stefanie, 2018. "A simpler theory of optimal capital taxation," Journal of Public Economics, Elsevier, vol. 162(C), pages 120-142.
    6. Thomas Blanchet, 2022. "Uncovering the Dynamics of the Wealth Distribution," Working Papers hal-03865295, HAL.
    7. Katrine Jakobsen & Kristian Jakobsen & Henrik Kleven & Gabriel Zucman, 2020. "Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark," The Quarterly Journal of Economics, Oxford University Press, vol. 135(1), pages 329-388.
    8. Waldenstrom, Daniel & Bastani, Spencer, 2018. "How Should Capital Be Taxed? Theory and Evidence from Sweden," CEPR Discussion Papers 12880, C.E.P.R. Discussion Papers.
    9. Chirvi, Malte & Schneider, Cornelius, 2020. "Preferences for wealth taxation: Design, framing and the role of partisanship," arqus Discussion Papers in Quantitative Tax Research 260, arqus - Arbeitskreis Quantitative Steuerlehre.
    10. Chirvi, Malte & Schneider, Cornelius, 2019. "Stated preferences for capital taxation - tax design, misinformation and the role of partisanship," arqus Discussion Papers in Quantitative Tax Research 242, arqus - Arbeitskreis Quantitative Steuerlehre.
    11. Fisman, Raymond & Gladstone, Keith & Kuziemko, Ilyana & Naidu, Suresh, 2020. "Do Americans want to tax wealth? Evidence from online surveys," Journal of Public Economics, Elsevier, vol. 188(C).
    12. Bonnet, Odran & Chapelle, Guillaume & Trannoy, Alain & Wasmer, Etienne, 2021. "Land is back, it should be taxed, it can be taxed," European Economic Review, Elsevier, vol. 134(C).
    13. Spencer Bastani & Daniel Waldenström, 2018. "How should capital be taxed? The Swedish experience," Working Papers hal-02878153, HAL.
    14. Kapeller, Jakob & Leitch, Stuart & Wildauer, Rafael, 2023. "Can a European wealth tax close the green investment gap?," Ecological Economics, Elsevier, vol. 209(C).
    15. Sarah Perret, 2021. "Why were most wealth taxes abandoned and is this time different?," Fiscal Studies, John Wiley & Sons, vol. 42(3-4), pages 539-563, September.
    16. Karl Schulz, 2021. "Redistribution of Return Inequality," CESifo Working Paper Series 8996, CESifo.
    17. Krapf, Matthias, 2018. "The Joint Distribution of Wealth and Income Risk: Evidence from Bern," Working papers 2018/18, Faculty of Business and Economics - University of Basel.
    18. Corina Boar & Matthew P. Knowles, 2022. "Optimal Taxation of Risky Entrepreneurial Capital," NBER Working Papers 29961, National Bureau of Economic Research, Inc.
    19. Marius Brülhart & Jonathan Gruber & Matthias Krapf & Kurt Schmidheiny, 2022. "Behavioral Responses to Wealth Taxes: Evidence from Switzerland," American Economic Journal: Economic Policy, American Economic Association, vol. 14(4), pages 111-150, November.
    20. Florian Scheuer & Joel Slemrod, 2020. "Taxation and the Superrich," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 189-211, August.

    More about this item

    Keywords

    Taxation; Housing; Wealth;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • G1 - Financial Economics - - General Financial Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:14144. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.