Housing Taxation and Economic Growth: Analysis of a Balanced-Growth Model with Residential Capital

Vinson Philip ()
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Vinson Philip: School of Business, W-2101, Georgia Gwinnett College, 1000 University Center Lane, Lawrenceville, GA 30043, USA

The B.E. Journal of Macroeconomics, 2023, vol. 23, issue 1, 181-217

Abstract: Using a neoclassical model with endogenous growth, this study examines the effects of increasing housing taxation and eliminating the mortgage interest tax deduction on economic growth and household welfare in the United States. The optimal tax policy reduces taxation of income in favor of increased taxation of housing and consumption. This policy increases the growth rate by 0.49 percentage points. In addition, simply shifting the tax burden by reducing the tax rates on productive forms of capital toward housing can increase the growth rate up to 0.18 percentage points. This study also find that eliminating the income tax deduction on mortgage interest and lowering income taxes would increase growth by about 0.016 percentage points. Each of these proposed policies improves household welfare.

Keywords: macroeconomics; growth; taxation (search for similar items in EconPapers)
JEL-codes: E6 H2 H3 O4 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejm-2021-0159

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