Does Favorable Tax-Treatment of Housing Reduce Equipment Investment?

29 Pages Posted: 14 Aug 2000 Last revised: 6 Apr 2008

See all articles by Ben Broadbent

Ben Broadbent

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Michael Kremer

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER); Center for Global Development; Harvard University - Harvard Kennedy School (HKS)

Date Written: September 1997

Abstract

It is often argued that low tax rates on owner-occupied housing divert investment from equipment. This paper demonstrates that if people are heterogeneous in their propensity to save, and if there are constraints on borrowing, favorable tax treatment of owner-occupied housing up to a certain value increases equipment investment. This is because low housing taxes encourage renters to become owner-occupiers, and this leads existing owner-occupiers to shift their portfolio of other assets from rental housing to equipment.

Suggested Citation

Broadbent, Ben and Kremer, Michael R., Does Favorable Tax-Treatment of Housing Reduce Equipment Investment? (September 1997). NBER Working Paper No. w6161. Available at SSRN: https://ssrn.com/abstract=225923

Ben Broadbent

Columbia University, Graduate School of Arts and Sciences, Department of Economics

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Michael R. Kremer (Contact Author)

Harvard University - Department of Economics ( email )

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Brookings Institution

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Center for Global Development

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Harvard University - Harvard Kennedy School (HKS) ( email )

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