This paper analyzes the way in which income tax and liquidity determine the purchase or rental of a permanent home in Spain. To do this, we have developed a theoretical dynamic model based on Euler’s equation. This model is verified using a sample from the 1991-1995 Panel of income taxpayers. Results suggest that the degree of financial restriction is the most relevant variable when determining the possibility of purchasing a home, while tax incentives increase their relative weighting once this asset has been acquired. Incentives for renting a home are relatively insignificant particularly for taxpayers who habitually rent their homes.
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Paper provided by EconWPA in its series Public Economics with number
0407006.
Find related papers by JEL classification: H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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