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The General Equilibrium Effects of Inflation on Housing Consumption and Investment

  • James Berkovec
  • Don Fullerton

In a mean-variance portfolio choice model, each of 3,578 households from the 1983 Survey of Consumer Finances has calculated preferences over housing, other consumption, and risk. Each household is constrained such that any owner-occupied housing in portfolio must match housing services consumed. Corporate taxes are modeled in some detail, and regression coefficients are used to estimate the adjusted gross income, itemizable deductions, and statutory marginal tax rate of each household. General equilibrium simulation results indicate that inflation does not necessarily increase total owner housing. Top-bracket households increase their owner housing, while others switch into bonds. The greater number of households in low-brackets implies that the homeownership rate can fall even if the amount of owner housing rises.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2826.

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Date of creation: Jan 1989
Date of revision:
Publication status: published as American Economic Review, vol. 79, no.2, pp.277-282, (May 1989).
Handle: RePEc:nbr:nberwo:2826
Note: PE
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  1. 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.
  2. Roger H. Gordon & Joel Slemrod, 1983. "A General Equilibrium Simulation Study of Subsidies to Municipal Expenditures," NBER Working Papers 1080, National Bureau of Economic Research, Inc.
  3. Hansson, Ingemar & Stuart, Charles, 1986. "The Fisher Hypothesis and International Capital Markets," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1330-37, December.
  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. Feldstein, Martin, 1982. " Inflation, Tax Rules and the Accumulation of Residential and Nonresidential Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 84(2), pages 293-311.
  6. 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.
  7. Summers, Lawrence H, 1981. "Inflation, the Stock Market, and Owner-Occupied Housing," American Economic Review, American Economic Association, vol. 71(2), pages 429-34, May.
  8. Don Fullerton & Andrew B. Lyon, 1987. "Tax Neutrality and Intangible Capital," NBER Working Papers 2430, National Bureau of Economic Research, Inc.
  9. 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.
  10. Rosen, Harvey S & Rosen, Kenneth T, 1980. "Federal Taxes and Homeownership: Evidence from Time Series," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 59-75, February.
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