The Tax Treatment of Homeowners and Landlords and the Progressivity of Income Taxation
The Tax Treatment of Homeowners and Landlords and the Progressivity of Income Taxation

Author: Matthew Chambers

Publisher:

Published: 2007

Total Pages:

ISBN-13:

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"This paper analyzes the connection between the asymmetric tax treatment of homeowners and landlords and the progressivity of income taxation using a quantitative overlapping generations general equilibrium model with housing and rental markets. Our model emphasizes the determinants of tenure choice (own vs. rent) and the household decision to supply housing services to the rental market. This formulation breaks the link between the rental price and the equilibrium interest rate and, hence, the aggregate supply of rental property responds differently to the direction of rental price changes, marginal tax rate changes, and maintenance cost changes. We show that the model replicates the key factors and the distributional patterns of ownership, house size, and landlords. The degree of progressivity in the income tax code has important implications for housing tenure and housing consumption. We find a movement toward a less progressive income tax code can generate sizeable increases in homeownership and welfare that result from the equilibrium effects and a portfolio reallocation mechanism absent in economies with a single asset (i.e. Conesa and Krueger (2006)). An examination of the removal of existing asymmetries in the tax code are found to have effects on housing that differ from those reported in the literature. We show that housing policy can increase the ownership rate of a particular segment of the population, but generate nontrivial distributional costs. The welfare increases are no larger than those found when the progressivity of the tax code is reduced"--Federal Reserve Bank of St. Louis web site.

The Tax Treatment of Homeowners and Landlords and the Progressivity of Income Taxation
The Tax Treatment of Homeowners and Landlords and the Progressivity of Income Taxation

Author: Matthew Chambers

Publisher:

Published: 2014

Total Pages: 42

ISBN-13:

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This paper analyzes the connection between the asymmetric tax treatment of homeowners and landlords and the progressivity of income taxation using a quantitative overlapping generations general equilibrium model with housing and rental markets. Our model emphasizes the determinants of tenure choice (own vs. rent) and the household decision to supply housing services to the rental market. This formulation breaks the link between the rental price and the equilibrium interest rate and, hence, the aggregate supply of rental property responds differently to the direction of rental price changes, marginal tax rate changes, and maintenance cost changes. We show that the model replicates the key factors and the distributional patterns of ownership, house size, and landlords. The degree of progressivity in the income tax code has important implications for housing tenure and housing consumption. We find a movement toward a less progressive income tax code can generate sizeable increases in homeownership and welfare that result from the equilibrium effects and a portfolio reallocation mechanism absent in economies with a single asset (i.e. Conesa and Krueger (2006)). An examination of the removal of existing asymmetries in the tax code are found to have effects on housing that differ from those reported in the literature. We show that housing policy can increase the ownership rate of a particular segment of the population, but generate nontrivial distributional costs. The welfare increases are no larger than those found when the progressivity of the tax code is reduced.

Taxation and Housing
Taxation and Housing

Author: James M. Poterba

Publisher:

Published: 1992

Total Pages: 13

ISBN-13:

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This paper sketches how the tax reforms of the 1980s affected the incentives and distortions associated with tax policy toward housing markets. There are three principal conclusions. (1) Reductions in marginal tax rates, particularly for high-income households, reduced the tax-induced distortion in the user cost of owner-occupied housing. This lowered the deadweight losses associated with the favorable tax treatment of homeownership. (2) The increase in the standard deduction in the Tax Reform Act of 1986 (TRA86) removed several million middle-income homeowners who previously itemized from the ranks of itemizers. For these households TRA86 raised the marginal cost of owner-occupied housing. These changes also exacerbated the regressive nature of the mortgage interest subsidy. In 1988, more than half of the tax losses associated with mortgage interest deductions accrued to the 8% of taxpayers with the highest economic incomes. (3) TRA86 reduced incentives for rental housing investment, contributing to the decline in new multifamily housing starts from 500,000 per year in 1985 to less than 150,000 in 1991. In the long-run these policies will lead to higher rents.

Housing Taxation
Housing Taxation

Author: Salvador Barrios Cobos

Publisher:

Published: 2019

Total Pages:

ISBN-13:

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Tax incentives favouring homeownership are widely used in developed economies. Homeownership is often thought to bring a number of positive contributions, from the promotion of households' saving to enhanced community engagement. However, housing tax incentives are also considered as a major source of distortions for households' decisions, especially in absence of taxation of in-kind services related to housing consumption (i.e. imputed rents) and in presence of mortgage interest payment deductibility. These distortions can have wide-ranging consequences for investment, consumption and public finances. Housing tax distortions have rarely been analysed from a cross-country perspective over time, however, not least because of the absence of comparable data and the difficulty to gather detailed information on the specific tax treatment of homeownership. In this paper we aim to fill this gap by providing comparable time series on the main features of housing taxation in European countries. Our database includes information on transfer taxes incurred when buying a house, implicit recurrent property taxes owed by households, capital gain taxes, imputed rent taxation and mortgage interest tax reliefs. The data is provided for the period 1995-2017 by the time of writing this paper and will be updated annually and made available at the following website: https://ec.europa.eu/jrc/en/thematic-research-fiscal-policy/housing-taxation. We use this data to estimate the user cost of owner-occupied housing (UCOH) following the approach proposed by Poterba, (1992) and Poterba and Sinai (2008), which provides a synthetic indicator on the distortions exerted by the tax system on households' housing investment choices. A number of additional data used to calculate the UCOH indicator, such as maximum loan to value ratio and maximum loan duration, interest rate for long-term government bonds, interest income tax and house price are also provided.