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House ownership and taxes

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Abstract

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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  • Torfinn Harding & Haakon O. Aa. Solheim & Andreas Benedictow, 2004. "House ownership and taxes," Discussion Papers 395, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:395
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    File URL: http://www.ssb.no/a/publikasjoner/pdf/DP/dp395.pdf
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    References listed on IDEAS

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    1. Poterba, James M & Summers, Lawrence H, 1984. " New Evidence that Taxes Affect the Valuation of Dividends," Journal of Finance, American Finance Association, vol. 39(5), pages 1397-1415, December.
    2. Englund, Peter & Hwang, Min & Quigley, John M, 2002. "Hedging Housing Risk," The Journal of Real Estate Finance and Economics, Springer, pages 167-200.
    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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    Cited by:

    1. Eva Sierminska & Andrea Brandolini & Timothy M Smeeding, 2007. "Comparing wealth distribution across rich countries: the Luxembourg Wealth Study project," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 1, volume 25, pages 297-310 Bank for International Settlements.
    2. Almås, Ingvild & Mogstad, Magne, 2010. "Older or Wealthier? The Impact of Age Adjustment on Cross-Sectional Inequality Measures," Discussion Paper Series in Economics 9/2010, Department of Economics, Norwegian School of Economics.
    3. Irving Fisher Committee, 2007. "Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 1," IFC Bulletins, Bank for International Settlements, number 25.

    More about this item

    Keywords

    Households; portfolio choice; consumption tax; capital gains tax.;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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