Homeownership Investment and Tax Neutrality: A Joint Assessment of Income and Property Taxes in Europe

23 Pages Posted: 9 Sep 2019

See all articles by Francesco Figari

Francesco Figari

University of Insubria - Department of Economics

Gerlinde Verbist

University of Antwerp

Francesca Zantomio

Ca Foscari University of Venice

Date Written: September 2, 2019

Abstract

Western countries’ income tax system exempts the return from investing in owner-occupied housing. Returns from other investments are instead taxed, thus distorting households’ portfolio choices, although it is argued that housing property taxation might act as a counterbalance. Based on data drawn from the Statistics of Income and Living Conditions and the UK Family Resources Survey, and building on tax benefit model EUROMOD, we provide novel evidence on the interplay of income and property taxation in budgetary, efficiency and equity terms in eight European countries. Results reveal that, even accounting for recurrent housing property taxation, a sizeable ‘homeownership bias’ i.e. a lighter average and marginal taxation for homeownership investment, is embedded in current tax systems, and displays heterogeneous distributional profiles across different countries. Housing property taxation represents only a partial correction towards neutrality.

Keywords: homeownership investment, tax neutrality, income tax, property tax, distributional effect, Europe, microsimulation

JEL Classification: D31, H23, I31, I32

Suggested Citation

Figari, Francesco and Verbist, Gerlinde and Zantomio, Francesca, Homeownership Investment and Tax Neutrality: A Joint Assessment of Income and Property Taxes in Europe (September 2, 2019). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 27/WP/2019 , Available at SSRN: https://ssrn.com/abstract=3449737 or http://dx.doi.org/10.2139/ssrn.3449737

Francesco Figari

University of Insubria - Department of Economics ( email )

Via Ravasi 2
Varese, 21100
Italy

Gerlinde Verbist

University of Antwerp ( email )

Prinsstraat 13
Antwerp, Antwerp 2000
Belgium

Francesca Zantomio (Contact Author)

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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