Housing and Tax Policy

This paper investigates the effects of housing-related tax policy measures on macroeconomic aggregates using a dynamic general-equilibrium model featuring borrowing and lending across heterogeneous households, financial frictions in the form of collateral constraints tied to house prices, and a rent...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2016-03, Vol.48 (2-3), p.485-512
Main Authors: ALPANDA, SAMI, ZUBAIRY, SARAH
Format: Article
Language:English
Subjects:
dynamic general equilibrium
E62
Fiscal policy
H24
Housing
Housing prices
Macroeconomics
R38
Studies
tax policy
Tax revenues
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Summary:This paper investigates the effects of housing-related tax policy measures on macroeconomic aggregates using a dynamic general-equilibrium model featuring borrowing and lending across heterogeneous households, financial frictions in the form of collateral constraints tied to house prices, and a rental housing market alongside owner-occupied housing. We analyze the effects of various tax policies and find that they all lead to significant output losses, with large long-run tax multipliers of around 2. Among them, reducing the mortgage interest deduction is the most effective in raising tax revenue per unit of output lost, whereas reducing the depreciation allowance for rental income is the least effective.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12307