On the Political Economy of Housings Tax Status
Most households have most of their wealth in the form of housing. We analyze how this distributional feature shapes the political economy of housing taxation. We build a simple dynamic general equilibrium model where households vote over the tax treatment of housing and business capital. The model is calibrated so as to match the joint distribution of financial wealth and housing wealth among US households. The median voter has a large share of his wealth in the form of housing and most of his income is wage earnings. The key trade-off he faces is that lowering the tax burden on business capital while increasing the tax burden on housing leads to higher wages but also increases his own share of the overall tax burden.
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