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The General Equilibrium Effects of Inflation on Housing Consumption and Investment

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  • James Berkovec
  • Don Fullerton

Abstract

In a mean-variance portfolio choice model, each of 3,578 households from the 1983 Survey of Consumer Finances has calculated preferences over housing, other consumption, and risk. Each household is constrained such that any owner-occupied housing in portfolio must match housing services consumed. Corporate taxes are modeled in some detail, and regression coefficients are used to estimate the adjusted gross income, itemizable deductions, and statutory marginal tax rate of each household. General equilibrium simulation results indicate that inflation does not necessarily increase total owner housing. Top-bracket households increase their owner housing, while others switch into bonds. The greater number of households in low-brackets implies that the homeownership rate can fall even if the amount of owner housing rises.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2826.

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Date of creation: Jan 1989
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Publication status: published as American Economic Review, vol. 79, no.2, pp.277-282, (May 1989).
Handle: RePEc:nbr:nberwo:2826

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  1. Don Fullerton & Andrew B. Lyon, 1988. "Tax Neutrality and Intangible Capital," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 63-88 National Bureau of Economic Research, Inc.
  2. Hendershott, Patric H & Hu, Sheng Cheng, 1983. " The Allocation of Capital between Residential and Nonresidential Uses: Taxes, Inflation and Capital Market Constraints," Journal of Finance, American Finance Association, vol. 38(3), pages 795-812, June.
  3. 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.
  4. Lawrence H. Summers, 1980. "Inflation, the Stock Market, and Owner-Occupied Housing," NBER Working Papers 0606, National Bureau of Economic Research, Inc.
  5. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  6. Rosen, Harvey S & Rosen, Kenneth T, 1980. "Federal Taxes and Homeownership: Evidence from Time Series," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 59-75, February.
  7. Martin Feldstein, 1983. "Inflation, Tax Rules, and the Accumulation of Residential and Nonresidential Capital," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 81-100 National Bureau of Economic Research, Inc.
  8. Roger H. Gordon & Joel Slemrod, 1983. "A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures," NBER Working Papers 1080, National Bureau of Economic Research, Inc.
  9. Joel Slemrod, 1982. "Tax Effects on the Allocation of Capital Among Sectors and Among Individuals: A Portfolio Approach," NBER Working Papers 0951, National Bureau of Economic Research, Inc.
  10. Hansson, Ingemar & Stuart, Charles, 1986. "The Fisher Hypothesis and International Capital Markets," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1330-37, December.
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Cited by:
  1. Charles Ka Yui Leung, 2004. "Macroeconomics and Housing: A Review of the Literature," Discussion Papers 00004, Chinese University of Hong Kong, Department of Economics.
  2. James Berkovec & Don Fullerton, 1993. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," NBER Working Papers 3505, National Bureau of Economic Research, Inc.
  3. Jonathan Skinner, 1991. "Housing and Saving in the United States," NBER Working Papers 3874, National Bureau of Economic Research, Inc.
  4. Okumura, Tsunao, 1997. "Housing Investment and Residential Land Supply in Japan: An Asset Market Approach," Journal of the Japanese and International Economies, Elsevier, vol. 11(1), pages 27-54, March.
  5. James M. Poterba, 1990. "Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms," NBER Working Papers 3270, National Bureau of Economic Research, Inc.

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