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A General Equilibrium Model of Housing, Taxes, and Portfolio Choice

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  • Berkovec, James
  • Fullerton, Don

Abstract

The authors describe a model in which rental and owner housing are risky assets, tenure choice is endogenous, and each household is constrained to consume the same amount of owner housing that it has in its investment portfolio. Equilibrium net rates of return are major determinants of the amount of owner housing, but a logit model indicates that demographic factors are the main determinants of ownership rates. In their simulation, taxes on owner housing would raise welfare not only by reallocating capital but also by the government's taking part of the risk from individual properties and diversifying it away. Copyright 1992 by University of Chicago Press.

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  • 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.
    • Handle: RePEc:ucp:jpolec:v:100:y:1992:i:2:p:390-429
    DOI: 10.1086/261822
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    References listed on IDEAS

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    1. 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.
    2. 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.
    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. 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.
    5. Olsen, Edgar O., 1987. "The demand and supply of housing service: A critical survey of the empirical literature," Handbook of Regional and Urban Economics, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 25, pages 989-1022, Elsevier.
    6. 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.
    7. Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 1-27.
    8. Summers, Lawrence H, 1981. "Inflation, the Stock Market, and Owner-Occupied Housing," American Economic Review, American Economic Association, vol. 71(2), pages 429-434, May.
    9. Bulow, Jeremy I & Summers, Lawrence H, 1984. "The Taxation of Risky Assets," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 20-39, February.
    10. King, Mervyn A., 1983. "Welfare analysis of tax reforms using household data," Journal of Public Economics, Elsevier, vol. 21(2), pages 183-214, July.
    11. Joel Slemrod, 1984. "A General Equilibrium Model of Taxation That Uses Micro-Unit Data: Withan Application to the Impact of Instituting a Flat-Rate Income Tax," NBER Working Papers 1461, National Bureau of Economic Research, Inc.
    12. 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.
    13. Don Fullerton & Marios Karayannis, 1987. "The Taxation of Income from Capital in the United States, 1980-86," NBER Working Papers 2478, National Bureau of Economic Research, Inc.
    14. Charles L. Ballard & Don Fullerton & John B. Shoven & John Whalley, 1985. "Replacing the Personal Income Tax with a Progressive Consumption Tax," NBER Chapters, in: A General Equilibrium Model for Tax Policy Evaluation, pages 171-187, National Bureau of Economic Research, Inc.
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