Taxing Home Ownership: Distributional Effects of Including Net Imputed Rent in Taxable Income

24 Pages Posted: 28 Apr 2012

See all articles by Francesco Figari

Francesco Figari

ISER - University of Essex

Alari Paulus

University of Essex - Institute for Social and Economic Research (ISER)

Holly Sutherland

University of Essex - Institute for Social and Economic Research (ISER)

Panos Tsakloglou

Athens University of Economics and Business - Department of International and European Economic Studies; IZA Institute of Labor Economics

Gerlinde Verbist

University of Antwerp

Francesca Zantomio

Ca Foscari University of Venice

Abstract

Imputed rental income of homeowners is tax exempt in most countries, despite the long-standing arguments recommending its inclusion in the tax base, on both equity and efficiency grounds. The current fiscal crisis revived interest towards this form of taxation. The paper investigates the fiscal and distributional consequences of including homeowners' imputed rent, net of mortgage interest and maintenance costs, in taxable income as any cash income source that extends consumption opportunities. Three scenarios are analysed in six European countries: in the first imputed rent is included in the taxable income of homeowners, while at the same time existing mortgage interest tax relief schemes and taxation of cadastral incomes are abolished. In two further revenue-neutral scenarios, the additional tax revenue raised through the taxation of imputed rent is redistributed to taxpayers, either through a proportional rebate or a lump-sum tax credit. Results show how including net imputed rent in the tax base might affect inequality in each of the countries considered. Housing taxation appears to be a promising avenue for raising additional revenues, or lightening taxation of labour, with no inequality-increasing side-effects.

Keywords: housing taxation, imputed rent, income distribution, inequality, microsimulation

JEL Classification: D31, H23, I31, I32

Suggested Citation

Figari, Francesco and Paulus, Alari and Sutherland, Holly and Tsakloglou, Panogiotis and Verbist, Gerlinde and Zantomio, Francesca, Taxing Home Ownership: Distributional Effects of Including Net Imputed Rent in Taxable Income. IZA Discussion Paper No. 6493, Available at SSRN: https://ssrn.com/abstract=2047279

Francesco Figari (Contact Author)

ISER - University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Alari Paulus

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Holly Sutherland

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Panogiotis Tsakloglou

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+301-8203195 (Phone)
+301-8214122 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerlinde Verbist

University of Antwerp ( email )

Prinsstraat 13
Antwerp, Antwerp 2000
Belgium

Francesca Zantomio

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
95
Abstract Views
753
rank
325,450
PlumX Metrics