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House ownership and taxes

The household portfolio is dominated by a small number of assets; primarily housing and mortgages. We compare data on actual portfolios of Norwegian households with estimated optimal portfolios, using traditional financial theory. We find actual portfolios to be close to the portfolio indicated by a mean-variance frontier, based on four assets and estimated under assumptions of short sale constraints. This result is sustained even in a no-tax regime. To induce a substantial change from housing to equity, taxation of the consumption stream from housing is needed. An alternative; taxation of capital gains from housing investment; could actually increase the relative holding of housing.

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Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 395.

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Date of creation: Nov 2004
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Handle: RePEc:ssb:dispap:395
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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. Englund, Peter & Hwang, Min & Quigley, John M., 2001. "Hedging Housing Risk," SIFR Research Report Series 2, Institute for Financial Research.
  3. James M. Poterba, 2001. "Taxation and Portfolio Structure: Issues and Implications," NBER Working Papers 8223, National Bureau of Economic Research, Inc.
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