Optimal housing taxation with land scarcity andmaintenance: a Mirrleesian perspective

Spencer Bastani (), Sören Blomquist (), Firouz Gahvari, Luca Micheletto () and Khayyam Tayibov ()
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Spencer Bastani: IFAU - Institute for Evaluation of Labour Market and Education Policy
Sören Blomquist: Department of Economics, Uppsala University
Luca Micheletto: Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University; UCFS; CESifo
Khayyam Tayibov: Department of Economics and Statistics, School of Business and Economics, Linnaeus University, Sweden

No 2025:8, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: We study optimal housing taxation in a Mirrleesian framework where individuals differ in both labor productivity and land ownership. Housing services are produced by combining scarce land with structures that require maintenance, which can be performed either in-house or through market purchases. We first characterize optimal allocations under information and resource constraints. We then restrict the government to the use of proportional housing taxes. Numerical simulations show that uniform taxation of land and structures is desirable only when political constraints prevent the imposition of very high land taxes. Otherwise, the optimal policy is to tax land at a much higher rate than structures, while still imposing a positive tax on structures to mitigate distortions from income taxation. A positive marginal tax on labor income incentivizes in-house over market-purchased maintenance. To prevent an inefficiently large reliance on in-house maintenance, optimal policy should generally subsidize market-purchased maintenance services.

Keywords: Optimal taxation; housing capital; land; labor supply; maintenance (search for similar items in EconPapers)
JEL-codes: D11 D31 H31 R21 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2025-06-03
New Economics Papers: this item is included in nep-pbe and nep-pub
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