Tax Benefits to Housing and Inefficiencies in Location and Consumption

42 Pages Posted: 17 Jan 2014

See all articles by David Albouy

David Albouy

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Andrew Hanson

Marquette University- Department of Economics

Date Written: January 2014

Abstract

Tax benefits to owner-occupied housing provide incentives for housing consumption, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally reduce inefficiency in consumption, but increase inefficiency in location decisions, unless they are accompanied by tax-rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels.

Suggested Citation

Albouy, David and Hanson, Andrew, Tax Benefits to Housing and Inefficiencies in Location and Consumption (January 2014). NBER Working Paper No. w19815. Available at SSRN: https://ssrn.com/abstract=2380466

David Albouy (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrew Hanson

Marquette University- Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

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