Tax, Credit Constraints, and the Big Costs of Small Inflation

Andrew Coleman ()
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Andrew Coleman: Motu Economic and Public Policy Research

No 08_14, Working Papers from Motu Economic and Public Policy Research

Abstract: This paper develops an overlapping generations model incorporating credit constraints, owner-occupier and rental sectors, and detailed tax regulations to examine how the interaction of inflation and the tax system affect the housing market. It shows that even modest rates of inflation can have very large effects on the home-ownership rates of young households, particularly at low real interest rates. This occurs even if there is a large supply response in the quantity of housing. The model suggests that the welfare costs of inflation could be ameliorated by exempting the inflation component of interest payments from income tax.

Keywords: Inflation; credit constraints; capital income taxes; housing markets; home-ownership rates; monetary policy (search for similar items in EconPapers)
JEL-codes: E40 E58 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2008-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mtu:wpaper:08_14

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