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Housing Policy and Redistribution


  • Sanna Tenhunen
  • Matti Tuomala

    (School of Management, University of Tampere)


The potential redistributive role of the housing subsidies has got a relatively little attention in the literature. However, non-linear housing subsidy schemes are commonly used by many countries. We consider the question of the optimal tax treatment of housing in a model where agents di¤er in two dimensions; ability and the housing price they face. The problem is also solved numerically. In addition to a general four-type model, we also considered two extensions: endogenously determined housing prices and paternalistic government. The key lesson from the paper is that when individuals differ also in access to housing, the housing subsidy schemes have a redistributive role and they are non-linear. A justification for subsidizing or taxing housing holds also without introducing any merit good argument to the analysis; in the optimal tax model where agents di¤er in their abilities and access to housing it is optimal to tax and subsidize housing, even with separable preferences.

Suggested Citation

  • Sanna Tenhunen & Matti Tuomala, 2007. "Housing Policy and Redistribution," Working Papers 0754, University of Tampere, School of Management, Economics.
  • Handle: RePEc:tam:wpaper:0754

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    More about this item


    Housing subsidies; two-dimensional heterogeneity; optimal taxation;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities


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