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Self-Control Problems and Conspicuous Housing Consumption:Implications for Tax Policy

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  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå School of Business and Economics)

  • Mannberg, Andrea

    ()
    (Department of Economics, Umeå School of Business and Economics)

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    Abstract

    During the latest decades, household mortgage loans have increased substantially in many countries. We develop an OLG model where housing is a positional consumption good (such that housing choices are partly driven by relative consumption concerns), and where the consumers are also characterized by a preference for immediate gratification due to quasi-hyperbolic discounting. The purpose is to examine how a paternalistic government may reach its preferred resource allocation through a mix of taxes/subsidies on capital income and housing wealth. Our results show that the optimal policy typically implies a marginal savings-subsidy, while the marginal housing wealth may either be taxed or subsidized. Upward social comparisons imply a possible scenario where the housing wealth of the young generation is subsidized and the housing wealth of the middle-aged generation is taxed at the margin.

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    Bibliographic Info

    Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 856.

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    Length: 35 pages
    Date of creation: 28 Feb 2013
    Date of revision:
    Handle: RePEc:hhs:umnees:0856

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    Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
    Phone: 090 - 786 61 42
    Fax: 090 - 77 23 02
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    Web page: http://www.econ.umu.se/
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    Related research

    Keywords: Conspicuous consumption; self-control problem; housing; optimal taxation;

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