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Government intervention in the housing market: Who wins, who loses?

Author

Listed:
  • Floetotto, Max
  • Kirker, Michael
  • Stroebel, Johannes

Abstract

Many U.S. government policies aim to encourage homeownership. We use a general equilibrium model with heterogeneous agents to consider the effects of temporary homebuyer tax credits and the asymmetric tax treatment of owner-occupied and rental housing on prices, quantities, allocations, and welfare. The model suggests that homebuyer tax credits temporarily raise house prices and transaction volumes, but have negative effects on welfare. Removing the asymmetric tax treatment of owner-occupied and rental housing can generate welfare gains for a majority of agents across steady states, but welfare impacts are substantially more varied along the transitions between steady states.

Suggested Citation

  • Floetotto, Max & Kirker, Michael & Stroebel, Johannes, 2016. "Government intervention in the housing market: Who wins, who loses?," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 106-123.
  • Handle: RePEc:eee:moneco:v:80:y:2016:i:c:p:106-123
    DOI: 10.1016/j.jmoneco.2016.04.005
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    References listed on IDEAS

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    1. Johannes Stroebel & Joseph Vavra, 2014. "House Prices, Local Demand, and Retail Prices," NBER Working Papers 20710, National Bureau of Economic Research, Inc.
    2. 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.
    3. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
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    6. Joe Vavra & Johannes Stroebel, 2014. "House Prices and Retail Prices," 2014 Meeting Papers 72, Society for Economic Dynamics.
    7. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, March.
    8. Cho, Sang-Wook (Stanley) & Francis, Johanna L., 2011. "Tax treatment of owner occupied housing and wealth inequality," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 42-60, March.
    9. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
    10. Edward L. Glaeser & Jesse M. Shapiro, 2003. "The Benefits of the Home Mortgage Interest Deduction," NBER Chapters,in: Tax Policy and the Economy, Volume 17, pages 37-82 National Bureau of Economic Research, Inc.
    11. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
    12. 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.
    13. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1687-1726.
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    Cited by:

    1. Elenev, Vadim & Landvoigt, Tim & Van Nieuwerburgh, Stijn, 2016. "Phasing out the GSEs," Journal of Monetary Economics, Elsevier, vol. 81(C), pages 111-132.
    2. Gete, Pedro & Zecchetto, Franco, 2017. "Distributional Implications of Government Guarantees in Mortgage Markets," MPRA Paper 80643, University Library of Munich, Germany.
    3. David Berger & Nicholas Turner & Eric Zwick, 2016. "Stimulating Housing Markets," NBER Working Papers 22903, National Bureau of Economic Research, Inc.
    4. repec:eee:finlet:v:23:y:2017:i:c:p:50-57 is not listed on IDEAS
    5. Zhao, Yunhui, 2016. "Got Hurt for What You Paid? Revisiting Government Subsidy in the U.S. Mortgage Market," MPRA Paper 81083, University Library of Munich, Germany, revised 01 Aug 2017.
    6. Michael Bailey & Eduardo Dávila & Theresa Kuchler & Johannes Stroebel, 2017. "House Price Beliefs And Mortgage Leverage Choice," NBER Working Papers 24091, National Bureau of Economic Research, Inc.
    7. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, Elsevier.
    8. Leo Kaas & Georgi Kocharkov & Edgar Preugschat & Nawid Siassi, 2017. "Low Homeownership in Germany - A Quantitative Exploration," CESifo Working Paper Series 6775, CESifo Group Munich.

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