Housing Policy and Redistribution

Sanna Tenhunen and Matti Tuomala

No 754, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: The potential redistributive role of the housing subsidies has got a relatively little attention in the literature. However, non-linear housing subsidy schemes are commonly used by many countries. We consider the question of the optimal tax treatment of housing in a model where agents di¤er in two dimensions; ability and the housing price they face. The problem is also solved numerically. In addition to a general four-type model, we also considered two extensions: endogenously determined housing prices and paternalistic government. The key lesson from the paper is that when individuals differ also in access to housing, the housing subsidy schemes have a redistributive role and they are non-linear. A justification for subsidizing or taxing housing holds also without introducing any merit good argument to the analysis; in the optimal tax model where agents di¤er in their abilities and access to housing it is optimal to tax and subsidize housing, even with separable preferences.

Keywords: Housing subsidies; two-dimensional heterogeneity; optimal taxation (search for similar items in EconPapers)
JEL-codes: D62 H23 H24 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-04
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http://urn.fi/urn:isbn:978-951-44-6940-4 First version, 2007 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:0754

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