Housing taxation and capital accumulation


Gervais, Martin (2002) Housing taxation and capital accumulation. Journal of Monetary Economics, 49, (7), 1461-1489. (doi:10.1016/S0304-3932(02)00172-1).

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Description/Abstract

This paper studies the impact of the preferential tax treatment of housing capital in a dynamic general equilibrium life-cycle economy populated by heterogeneous individuals. The model includes the main housing tax provisions currently in place in the U.S. and a minimum downpayment requirement upon purchasing non-divisible houses. The tax code makes the return on housing capital larger than that on business capital, which distorts the lifetime profile and composition of individuals’ savings. The wedge between the two rates of return emanates from the failure to tax imputed rents and is amplified by the presence of mortgage interest deductibility. Simulations show that individuals at all income levels would rather live in a world where imputed rents are taxed or one where mortgage interest payments are not deductible. Furthermore, distributional effects are much smaller than conventionally believed.

Item Type: Article
ISSNs: 0304-3932 (print)
Related URLs:
Keywords: housing taxation, imputed rents, mortgage deductibility, capital accumulation
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
Divisions: University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 47642
Date Deposited: 07 Aug 2007
Last Modified: 27 Mar 2014 18:31
Contact Email Address: gervais@qed.econ.queensu.ca
URI: http://eprints.soton.ac.uk/id/eprint/47642

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