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Are Houses Too Big or In the Wrong Place? Tax Benefits to Housing and Inefficiencies in Location and Consumption

In: Tax Policy and the Economy, Volume 28

  • David Albouy
  • Andrew Hanson

Tax benefits to owner-occupied housing provide incentives to consume housing, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally increase efficiency in consumption, but reduce efficiency in location decisions, unless they are accompanied by tax rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels.

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This chapter was published in:
  • Jeffrey R. Brown, 2014. "Tax Policy and the Economy, Volume 28," NBER Books, National Bureau of Economic Research, Inc, number brow13-1, December.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13054.
    Handle: RePEc:nbr:nberch:13054
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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