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Tax Policy, the Distribution of Income, and the Value of Land and Leisure

Author

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  • Morris A. Davis

    (Research and Statistics Federal Reserve Board of Governors)

Abstract

Since 1975, the aggregate value of residential land has averaged approximately 90% of GDP and has recently risen to 125% of GDP. In this paper, I use a calibrated general-equilibrium model with idisyncratic labor productivity draws to attempt to measure the extent to which current tax policies, and properties of the income distribution, interact to determine the aggregate value of land. Many features of the model are fairly standard — households receive after-tax capital and labor income and each period make decisions on how much consumption to enjoy, how many hours to work, and how many financial assets to carry forward to the next period. Each period, households also must decide how much to spend on “land.†Households use land in the model to reduce unpaid hours ("commuting time") associated with working. By assumption, when households purchase more land they reduce their commute and households with a shorter commute have more time available to work or enjoy leisure. The aggregate quantity of land is assumed to be in fixed supply

Suggested Citation

  • Morris A. Davis, 2006. "Tax Policy, the Distribution of Income, and the Value of Land and Leisure," 2006 Meeting Papers 225, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:225
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    More about this item

    Keywords

    housing; income distribution; tax policy; land; leisure;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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