Bubble on Real Estate: The Role of Altruism and Fiscal Policy

Lise Clain-Chamosset-Yvrard () and Thomas Seegmuller ()
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Lise Clain-Chamosset-Yvrard: Univ. Lyon, Université Lumière Lyon 2, GATE UMR 5824, https://www.gate.cnrs.fr/spip.php?article1020
Thomas Seegmuller: Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE, https://www.amse-aixmarseille.fr/users/seegmuller

No 1821, AMSE Working Papers from Aix-Marseille School of Economics, France

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: bubble; altruism; real estate; credit; overlapping generations (search for similar items in EconPapers)
JEL-codes: E22 E44 G11 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2018-09
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1821

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