Capital income taxation with housing

Makoto Nakajima ()

Journal of Economic Dynamics and Control, 2020, vol. 115, issue C

Abstract: This paper quantitatively investigates capital income taxation in the general-equilibrium overlapping generations model with household heterogeneity and housing. Housing tax policy is found to affect how capital income should be taxed, due to substitution between housing and non-housing capital. Given the existing U.S. preferential tax treatment for owner-occupied housing, the optimal capital income tax rate is close to zero (1%), contrary to the high optimal capital income tax rate found with overlapping generations models without housing (31%). A low capital income tax rate improves welfare by narrowing a tax wedge between housing and non-housing capital; the narrowed tax wedge indirectly nullifies the subsidies (taxes) for homeowners (renters) and corrects over-investment to housing. Naturally, when the preferential tax treatment for owner-occupied housing is eliminated, a high capital income tax rate improves welfare as in the model without housing.

Keywords: Housing; Optimal taxation; Capital income taxation; Heterogeneous agents; Life cycle; Overlapping generations; Incomplete markets (search for similar items in EconPapers)
JEL-codes: E21 H21 H24 R21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016518892030052X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Capital Income Taxation with Housing (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:115:y:2020:i:c:s016518892030052x

DOI: 10.1016/j.jedc.2020.103883

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().