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Taxation and Housing Markets: Preliminary Evidence on the Effects of Recent Tax Reforms

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  • James M. Poterba

Abstract

The tax changes of the 1980s altered the incentives for housing consumption. Marginal tax rate reductions in both the Economic Recovery Tax Act (1981) and the Tax Reform Act (1986) reduced the attraction of homeownership, particularly at high income levels. The Tax Reform Act, by lowering depreciation allowances and implementing anti-tax shelter provisions, also reduced the net tax subsidy to rental housing. In the long run these changes will raise real rents and reduce the fraction of national income that is allocated to housing. Preliminary evidence shows a pronounced decline in rental housing construction since the 1986 tax bill, as well as a decline in the real price of owner-occupied homes which may be partly attributable to the tax change.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3270.

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Date of creation: Feb 1990
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Publication status: published as Slemrod, Joel (ed.) Do Taxes Matter? The Impact of the Tax Reform Act of 1986. Cambridge, MA: The MIT Press, 1990.
Handle: RePEc:nbr:nberwo:3270

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  1. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 325-30, May.
  2. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 99(4), pages 729-52, November.
  3. Berkovec, James & Fullerton, Don, 1989. "The General Equilibrium Effects of Inflation on Housing Consumption and Investment," American Economic Review, American Economic Association, American Economic Association, vol. 79(2), pages 277-82, May.
  4. Lawrence H. Goulder & Lawrence H. Summers, 1987. "Tax Policy, Asset Prices, and Growth: A General Equilibrium Analysis," NBER Working Papers 2128, National Bureau of Economic Research, Inc.
  5. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 19(2), pages 235-258, May.
  6. Titman, Sheridan D, 1982. " The Effects of Anticipated Inflation on Housing Market Equilibrium," Journal of Finance, American Finance Association, American Finance Association, vol. 37(3), pages 827-42, June.
  7. Randolph, William C., 1988. "Estimation of housing depreciation: Short-term quality change and long-term vintage effects," Journal of Urban Economics, Elsevier, vol. 23(2), pages 162-178, March.
  8. Joel Slemrod, 1981. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Working Papers 0799, National Bureau of Economic Research, Inc.
  9. Olsen, Edgar O., 1987. "The demand and supply of housing service: A critical survey of the empirical literature," Handbook of Regional and Urban Economics, Elsevier, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 25, pages 989-1022 Elsevier.
  10. Edwin S. Mills, 1987. "Dividing up the investment pie: have we overinvested in housing?," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Mar, pages 13-23.
  11. Patric H. Hendershott & David C. Ling, 1984. "Trading and the Tax Shelter Value of Depreciable Real Estate," NBER Working Papers 1267, National Bureau of Economic Research, Inc.
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Cited by:
  1. Joe Peek & James A. Wilcox, 1991. "The measurement and determinants of single-family house prices," Working Papers, Federal Reserve Bank of Boston 91-7, Federal Reserve Bank of Boston.

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