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Optimal capital income taxation with housing

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  • Makoto Nakajima

Abstract

This paper quantitatively investigates the optimal capital income taxation in the general equilibrium overlapping generations model, which incorporates characteristics of housing and the U.S. preferential tax treatment for owner-occupied housing. Housing tax policy is found to have a substantial effect on how capital income should be taxed. Given the U.S. preferential tax treatment for owner-occupied housing, the optimal capital income tax rate is close to zero, contrary to the high optimal capital income tax rate implied by models without housing. A lower capital income tax rate implies a narrowed tax wedge between housing and non-housing capital, which indirectly nullifies the subsidies (taxes) for homeowners (renters) and corrects the over-investment to housing.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 10-11.

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Date of creation: 2010
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Handle: RePEc:fip:fedpwp:10-11

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Keywords: Taxation ; Housing;

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References

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Citations

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Cited by:
  1. William B. Peterman, 2011. "Determining the motives for a positive optimal tax on capital," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2011-55, Board of Governors of the Federal Reserve System (U.S.).
  2. Satyajit Chatterjee & Burcu Eyigungor, 2011. "A quantitative analysis of the U.S. housing and mortgage markets and the foreclosure crisis," Working Papers 11-26, Federal Reserve Bank of Philadelphia.
  3. William B. Peterman, 2012. "An extensive look at taxes: how does endogenous retirement affect optimal taxation?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2012-28, Board of Governors of the Federal Reserve System (U.S.).
  4. Irina A. Telyukova & Makoto Nakajima, 2011. "Home Equity in Retirement," NFI Working Papers 2011-WP-08B, Indiana State University, Scott College of Business, Networks Financial Institute, revised Aug 2011.
  5. Makoto Nakajima & Irina A. Telyukova, 2011. "Home equity withdrawal in retirement," Working Papers 11-15, Federal Reserve Bank of Philadelphia.
  6. Shaofeng Xu, 2013. "An Equilibrium Analysis of the Rise in House Prices and Mortgage Debt," Working Papers 13-9, Bank of Canada.
  7. Hans Fehr & Fabian Kindermann, 2012. "Optimal Taxation with Current and Future Cohorts," CESifo Working Paper Series 3973, CESifo Group Munich.
  8. Cagri Seda Kumru & John Piggott, 2012. "Optimal Capital Income Taxation with Means-tested Benefits," CAMA Working Papers 2012-21, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Anagnostopoulos, Alexis & Atesagaoglu, Orhan Erem & Carceles-Poveda, Eva, 2013. "Skill-biased technological change and homeownership," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 3012-3033.
  10. William Peterman, 2012. "The Effect of Endogenous Human Capital Accumulation on Optimal Taxation," 2012 Meeting Papers, Society for Economic Dynamics 204, Society for Economic Dynamics.
  11. Sanjay K. Chugh & Andre Kurmann & David M. Arseneau, 2009. "Optimal Capital Taxation in an Economy with Capital Allocation Frictions," 2009 Meeting Papers, Society for Economic Dynamics 147, Society for Economic Dynamics.

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