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The General Equilibrium Effects of Inflation on Housing Consumption and Investment

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  • Berkovec, James
  • Fullerton, Don

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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  • Berkovec, James & Fullerton, Don, 1989. "The General Equilibrium Effects of Inflation on Housing Consumption and Investment," American Economic Review, American Economic Association, vol. 79(2), pages 277-282, May.
  • Handle: RePEc:aea:aecrev:v:79:y:1989:i:2:p:277-82
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    References listed on IDEAS

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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. Gordon, Roger H & Slemrod, Joel, 1983. " A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures," Journal of Finance, American Finance Association, vol. 38(2), pages 585-594, May.
    3. 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.
    4. Poterba, James M & Summers, Lawrence H, 1984. " New Evidence that Taxes Affect the Valuation of Dividends," Journal of Finance, American Finance Association, vol. 39(5), pages 1397-1415, December.
    5. 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.
    6. Summers, Lawrence H, 1981. "Inflation, the Stock Market, and Owner-Occupied Housing," American Economic Review, American Economic Association, pages 429-434.
    7. 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.
    8. Hansson, Ingemar & Stuart, Charles, 1986. "The Fisher Hypothesis and International Capital Markets," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1330-1337, December.
    9. 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.
    10. 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.
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    Cited by:

    1. Theodore Panagiotidis & Panagiotis Printzis, 2016. "On the macroeconomic determinants of the housing market in Greece: a VECM approach," International Economics and Economic Policy, Springer, vol. 13(3), pages 387-409, July.
    2. Charles Ka-yui Leung & Dandan Feng, 2004. "Testing Alternative Theories of Property Price-Trading Volume with Commercial Real Estate Market Data," Departmental Working Papers _159, Chinese University of Hong Kong, Department of Economics.
    3. 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.
    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. Leung, Charles, 2004. "Macroeconomics and housing: a review of the literature," Journal of Housing Economics, Elsevier, vol. 13(4), pages 249-267, December.
    6. Jonathan S. Skinner, 1994. "Housing and Saving in the United States," NBER Chapters,in: Housing Markets in the United States and Japan, pages 191-214 National Bureau of Economic Research, Inc.
    7. 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.

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