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Taxing home ownership: distributional effects of including net imputed rent in taxable income

Author

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  • Francesco Figari

    () (University of Essex & University of Insubria)

  • Alari Paulus

    () (University of Essex)

  • Holly Sutherland

    () (University of Essex)

  • Panos Tsakloglou

    () (Athens University of Economics and Business)

  • Gerlinde Verbist

    () (University of Antwerp)

  • Francesca Zantomio

    () (Ca� Foscari University of Venice)

Abstract

Imputed rental income of homeowners is tax exempt in most countries, despite the long-standing arguments recommending its inclusion in the tax base, on both equity and efficiency grounds. The current fiscal crisis revived interest towards this form of taxation. The paper investigates the fiscal and distributional consequences of including homeowners� imputed rent, net of mortgage interest and maintenance costs, in taxable income as any cash income source that extends consumption opportunities. Three scenarios are analysed in six European countries: in the first imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In two further revenue-neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, either through a proportional rebate or a lump-sum tax credit. Results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality-increasing side-effects.

Suggested Citation

  • Francesco Figari & Alari Paulus & Holly Sutherland & Panos Tsakloglou & Gerlinde Verbist & Francesca Zantomio, 2012. "Taxing home ownership: distributional effects of including net imputed rent in taxable income," DEOS Working Papers 1209, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1209
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    References listed on IDEAS

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    Cited by:

    1. Virginia Maestri, 2015. "A Measure of Income Poverty Including Housing: Benefits and Limitations for Policy Making," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 121(3), pages 675-696, April.
    2. Erlend Eide Bø, 2015. "Taxation of housing. Killing several birds with one stone," Discussion Papers 829, Statistics Norway, Research Department.

    More about this item

    Keywords

    Housing taxation; imputed rent; income distribution; inequality; microsimulation;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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