Bubble on real estate: the role of altruism and fiscal policy

Lise Clain-Chamosset-Yvrard and Seegmuller Thomas ()
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Seegmuller Thomas: Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE, Marseille, France

Studies in Nonlinear Dynamics & Econometrics, 2019, vol. 23, issue 4, 18

Abstract: In this paper, we are interested in the interplay between real estate bubble, aggregate capital accumulation and taxation in an overlapping generations economy with altruistic households. We consider a three-period overlapping generations model with three key elements: altruism, portfolio choice, and financial market imperfections. Households realise different investment decisions in terms of asset at different periods of life, face a binding borrowing constraint and leave bequests to their children. We show that altruism plays a key role on the existence of a productive real estate bubble, i.e. a bubble in real estate raising physical capital stock and aggregate output. The key mechanism relies on the fact that a real estate bubble raises income of retired households. Because of higher bequests, there children are able to invest more in productive capital. Introducing fiscal policy, we show that raising real estate taxation dampens capital accumulation.

Keywords: altruism; bubble; credit; overlapping generations; real estate (search for similar items in EconPapers)
JEL-codes: E22 E44 G11 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Bubble on real estate: the role of altruism and fiscal policy (2019)
Working Paper: Bubble on real estate: The role of altruism and fiscal policy (2019)
Working Paper: Bubble on real estate: The role of altruism and fiscal policy (2018)
Working Paper: Bubble on real estate: The role of altruism and fiscal policy (2018)
Working Paper: Bubble on real estate: The role of altruism and fiscal policy (2018)
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DOI: 10.1515/snde-2019-0020

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