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The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home‐Mortgage Interest Rate ReguIation

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  • ROSLYN ANSTIE
  • CHRISTOPHER FINDLAY
  • IAN HARPER

Abstract

Judy Yates (1981) notes the regressive redistributive impact of home‐mortgage interest rate regulation and offers some explanations. This paper provides an alternative explanation of Yates' observations in terms of the interaction of inflation with the current tax system in Australia. A model of tenure choice in the context of inflation and taxation is developed. In explaining this phenomenon, the model also establishes the regressive nature of the tax subsidy to owner‐occupation. Home‐mortgage interest rate regulation is then introduced. This reinforces the redistributive bias in the housing finance market. The model is used finally to predict the impact of deregulation. It is concluded that deregulation by itself can only remove redistributive bias resulting from regulated mortgage interest rates. Reform of the tax system is required to eliminate the regressive redistributive effects of the tax subsidy to owner‐occupation.

Suggested Citation

  • Roslyn Anstie & Christopher Findlay & Ian Harper, 1983. "The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home‐Mortgage Interest Rate ReguIation," The Economic Record, The Economic Society of Australia, vol. 59(2), pages 105-110, June.
    • Handle: RePEc:bla:ecorec:v:59:y:1983:i:2:p:105-110
    DOI: 10.1111/j.1475-4932.1983.tb00586.x
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    References listed on IDEAS

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    1. D. M. Kiefer, 1978. "The Equity of Alternative Policies for the Australian Homeowner," The Economic Record, The Economic Society of Australia, vol. 54(1), pages 127-139, April.
    2. Kiefer, D M, 1978. "The Equity of Alternative Policies for the Australian Homeowner," The Economic Record, The Economic Society of Australia, vol. 54(145), pages 127-139, April.
    3. Martin Feldstein, 1983. "Inflation, Income Taxes, and the Rate of Interest: A Theoretical Analysis," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 28-43, National Bureau of Economic Research, Inc.
    4. Robert Albon & John Piggott, 1983. "Housing Interest Rate Deregulation and the Campbell Report," The Economic Record, The Economic Society of Australia, vol. 59(1), pages 80-87, March.
    5. Darby, Michael R, 1975. "The Financial and Tax Effects of Monetary Policy on Interest Rates," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 266-276, June.
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    Cited by:

    1. Sarah Male, 1988. "Non‐Price Barriers to Home Ownership," The Economic Record, The Economic Society of Australia, vol. 64(1), pages 26-38, March.
    2. Ross A. Williams, 1984. "An Australian Housing Model," The Economic Record, The Economic Society of Australia, vol. 60(2), pages 143-155, June.

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