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Housing taxation and capital accumulation

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Listed author(s):
  • Gervais, Martin

Abstract

This paper studies the impact of the preferential tax treatment of housing capital in a model economy that includes the main housing tax provisions currently in place in the U.S. and a minimum downpayment requirement upon purchasing non-divisible houses. Distortions arise because the tax code makes the return on housing capital larger than that on business capital. The wedge between the two rates of return emanates from the failure to tax imputed rents and is amplified by the presence of mortgage interest deductibility. Simulations show that either taxing imputed rents or eliminating mortgage interest deductibility substantially increases welfare. Moreover, welfare gains accrue to individuals at every income level and distributional effects are much smaller than conventionally believed.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 49 (2002)
Issue (Month): 7 (October)
Pages: 1461-1489

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Handle: RePEc:eee:moneco:v:49:y:2002:i:7:p:1461-1489
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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Find related papers by JEL classification:
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
  • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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  3. Rosen, Harvey S., 1985. "Housing subsidies: Effects on housing decisions, efficiency, and equity," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 7, pages 375-420 Elsevier.
  4. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Fullerton, Don, 1987. "The indexation of interest, depreciation, and capital gains and tax reform in the United States," Journal of Public Economics, Elsevier, vol. 32(1), pages 25-51, February.
  6. Peter M. Zorn, 1989. "Mobility-Tenure Decisions and Financial Credit: Do Mortgage Qualification Requirements Constrain Homeownership?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 1-16.
  7. Gahvari, Firouz, 1984. "Incidence and efficiency aspects of differential taxation of residential and industrial capital in a growing economy," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 211-233, November.
  8. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 379-406.
  9. Jappelli, Tullio & Pagano, Marco, 1989. "Consumption and Capital Market Imperfections: An International Comparison," American Economic Review, American Economic Association, vol. 79(5), pages 1088-1105, December.
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  11. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  12. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
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  14. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
  15. 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.
  16. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-242, May.
  17. Jonathan Skinner & Daniel Feenberg, 1990. "The Impact of the 1986 Tax Reform Act on Personal Saving," NBER Working Papers 3257, National Bureau of Economic Research, Inc.
  18. 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.
  19. Skinner, Jonathan, 1996. "The dynamic efficiency cost of not taxing housing," Journal of Public Economics, Elsevier, vol. 59(3), pages 397-417, March.
  20. 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.
  21. Lawrence D. Jones, 1989. "Current Wealth and Tenure Choice," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 17-40.
  22. Artle, Roland & Varaiya, Pravin, 1978. "Life cycle consumption and homeownership," Journal of Economic Theory, Elsevier, vol. 18(1), pages 38-58, June.
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