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Taxation and Housing: Old Questions, New Answers

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Author Info
James M. Poterba

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Abstract

This paper sketches how the tax reforms of the 1980s affected the incentives and distortions associated with tax policy toward housing markets. There are three principal conclusions. (1) Reductions in marginal tax rates, particularly for high-income households, reduced the tax-induced distortion in the user cost of owner-occupied housing. This lowered the deadweight losses associated with the favorable tax treatment of homeownership. (2) The increase in the standard deduction in the Tax Reform Act of 1986 (TRA86) removed several million middle-income homeowners who previously itemized from the ranks of itemizers. For these households TRA86 raised the marginal cost of owner-occupied housing. These changes also exacerbated the regressive nature of the mortgage interest subsidy. In 1988, more than half of the tax losses associated with mortgage interest deductions accrued to the 8% of taxpayers with the highest economic incomes. (3) TRA86 reduced incentives for rental housing investment, contributing to the decline in new multifamily housing starts from 500,000 per year in 1985 to less than 150,000 in 1991. In the long-run these policies will lead to higher rents.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3963.

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Date of creation: Jan 1992
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Publication status: published as American Economic Review Vol. 82, May 1992, pp. 237-242
Handle: RePEc:nbr:nberwo:3963

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  1. Jacob L. Vigdor, 2004. "Liquidity Constraints and Housing Prices: Theory and Evidence from the VA Mortgage," NBER Working Papers 10611, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Erica Greulich & John Quigley, 2006. "Housing Subsidies and the Tax Code: The Case of Mortgage Credit Certificates," Berkeley Program on Housing and Urban Policy, Working Paper Series 1042, Berkeley Program on Housing and Urban Policy. [Downloadable!]
  3. Holger Sieg & V. Kerry Smith & H. Spencer Banzhaf & Randy Walsh, 2000. "Estimating the General Equilibrium Benefits of Large Policy Changes: The Clean Air Act Revisited," NBER Working Papers 7744, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Smith, V. Kerry & Van Houtven, George & Pattanayak, Subhrendu, 1999. "Benefit Transfer as Preference Calibration," Discussion Papers dp-99-36, Resources For the Future. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
  6. Dennis Epple & Holger Sieg, 1998. "Estimating Equilibrium Models of Local Jurisdictions," NBER Working Papers 6822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Martin Feldstein, 1997. "Capital Income Taxes and the Benefit of Price Stability," NBER Working Papers 6200, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. David Hargreaves, 2008. "The tax system and housing demand in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/06, Reserve Bank of New Zealand. [Downloadable!]
  9. David Y. Albouy, 2008. "The Unequal Geographic Burden of Federal Taxation," NBER Working Papers 13995, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics. [Downloadable!]
    Other versions:
  11. Buckley, Robert M & Gurenko, Eugene N, 1997. "Housing and Income Distribution in Russia: Zhivago's Legacy," World Bank Research Observer, Oxford University Press, vol. 12(1), pages 19-32, February. [Downloadable!]
  12. Banzhaf, H. Spencer, 2002. "Green Price Indices," Discussion Papers dp-02-09-, Resources For the Future. [Downloadable!]
    Other versions:
  13. Graciela Sanromán, 2003. "Vivienda y Fiscalidad en España: un análisis empírico," Documentos de Trabajo (working papers) 0803, Department of Economics - dECON. [Downloadable!]
  14. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Urban Growth and Housing Supply," NBER Working Papers 11097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Smith, V. Kerry & Banzhaf, H. Spencer, 2003. "Meta Analysis in Model Implementation: Choice Sets and the Valuation of Air Quality Improvements," Discussion Papers dp-03-61, Resources For the Future. [Downloadable!]
    Other versions:
  16. Stephen Calabrese & Dennis Epple & Thomas Romer & Holger Sieg, 2005. "Local Public Good Provision: Voting, Peer Effects, and Mobility," NBER Working Papers 11720, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Eerola , Essi & Määttänen , Niku, 2005. "The optimal tax treatment of housing capital in the neoclassical growth model," Research Discussion Papers 10/2005, Bank of Finland. [Downloadable!]
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