Tax Subsidies and Housing Affordability
30 Pages Posted: 28 Feb 2021 Last revised: 12 Aug 2022
Date Written: August 10, 2022
We argue that the effectiveness of tax subsidies to make housing affordable depends on four parameters: the elasticity of supply and demand, and the distribution of housing ownership and consumption. We estimate these parameters with administrative data on real estate transactions and survey data on household balance sheets in Luxembourg. Using kinks in the taxes on transactions and on new constructions, we find that the `leakage' of housing tax subsidies to the wealthier households is substantial. The top 10% of households by real estate wealth capture between 17% and 22% of the surplus from housing tax subsidies.
Keywords: Real Estate, Taxes, Housing Subsidies, Housing Affordability
JEL Classification: G51, H71, R21, R31
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