Imputed Rental Income, Taxation and Income Distribution in Finland
AbstractThis paper analyses the effects of imputed rental income from owner-occupied housing and its taxation on income distribution in Finland. Using micro-data from the 2004 Wealth Survey produced by Statistics Finland we find that owner-occupied housing has a significant impact on the well-being of many households. In 2004 imputed rental income constituted on average about 10 percent of homeowner households? disposable income. Furthermore, including imputed rental income to household disposable income decreased overall inequality measured by the Gini index. The estimated tax revenue forgone in 2004 was 1.9 billion euros amounting to almost 15 percent of the total government income and wealth tax revenue collected that year. On the other hand, the tax subsidy resulting from non-taxation of imputed rental income is skewed toward high-income households who are more likely to be homeowners and also more likely to own outright. The paper also made a comparison of the current tax system where imputed rental income is untaxed to two alternative tenure neutral tax systems where imputed rental income is taxed. The results indicate that the effects on overall inequality depend vitally on the way the increased tax revenue is transferred back to the households. The calculations in this paper ignore any behavioural responses by the households. JEL Codes: H23, H24, R21.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 446.
Date of creation: 02 Jul 2008
Date of revision:
Other versions of this item:
- Tuukka Saarimaa, 2011. "Imputed Rental Income, Taxation and Income Distribution in Finland," Urban Studies, Urban Studies Journal Limited, vol. 48(8), pages 1695-1714, June.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-PBE-2008-09-13 (Public Economics)
- NEP-PUB-2008-09-13 (Public Finance)
- NEP-URE-2008-09-13 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Linneman, Peter, 1985. "An economic analysis of the homeownership decision," Journal of Urban Economics, Elsevier, vol. 17(2), pages 230-246, March.
- Cremer, H. & Gahvari, F., 1996.
"On Optimal Taxation of Housing,"
96.417, Toulouse - GREMAQ.
- 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.
- 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.
- 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.
- 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.
- Frick, Joachim R. & Grabka, Markus M., 2003. "Imputed Rent and Income Inequality: A Decomposition Analysis for Great Britain, West Germany and the U.S," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 513-537.
- 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.
- Edward L. Glaeser & Jesse M. Shapiro, 2003.
"The Benefits of the Home Mortgage Interest Deduction,"
in: Tax Policy and the Economy, Volume 17, pages 37-82
National Bureau of Economic Research, Inc.
- 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.
- Yannis M. Ioannides & Jeffrey E. Zabel, 2000.
"Neighborhood Effects and Housing Demand,"
Discussion Papers Series, Department of Economics, Tufts University
0012, Department of Economics, Tufts University.
- Hills, John, 1991. "Distributional effects of housing subsidies in the United Kingdom," Journal of Public Economics, Elsevier, vol. 44(3), pages 321-352, April.
- Mika Kortelainen & Tuukka Saarimaa, 2012.
"Do homeowners benefit urban neighborhoods? Evidence from housing prices,"
36, Government Institute for Economic Research Finland (VATT).
- Mika Kortelainen & Tuukka Saarimaa, 2012. "Do Homeowners Benefit Urban Neighborhoods? Evidence from Housing Prices," SERC Discussion Papers 0110, Spatial Economics Research Centre, LSE.
- Tuukka Saarimaa & Mika Kortelainen, 2012. "Do Homeowners Benefit the Neighborhood? Evidence from Semiparametric Hedonic Regressions," ERSA conference papers ersa12p472, European Regional Science Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anita Niskanen).
If references are entirely missing, you can add them using this form.