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Housing and Tax Policy

Sami Alpanda () and Sarah Zubairy ()

Staff Working Papers from Bank of Canada

Abstract: In this paper, we investigate the effects of housing-related tax policy measures on macroeconomic aggregates using a dynamic general-equilibrium model. The model features borrowing and lending across heterogeneous households, financial frictions in the form of collateral constraints tied to house prices, and a rental housing market alongside owner-occupied housing. Using our model, we analyze the effects of changes in housing-related tax policy measures on the level of output, tax revenue and household debt, along with other macroeconomic aggregates. The tax policies we consider are (i) increasing property tax rates, (ii) eliminating the mortgage interest deduction, (iii) eliminating the depreciation allowance for rental income, (iv) instituting taxation of imputed rental income from owner-occupied housing and (v) eliminating the property tax deduction. We find that among these fiscal tools, eliminating the mortgage interest deduction would be the most effective in raising tax revenue, and in reducing household debt, per unit of output lost. On the other hand, eliminating the depreciation allowance for rental income would be the least effective. Our experiments also highlight the differential welfare impact of each tax policy on savers, borrowers and renters.

Keywords: Economic models; Fiscal Policy (search for similar items in EconPapers)
JEL-codes: E62 H24 R38 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mac, nep-pbe, nep-pub and nep-ure
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Journal Article: Housing and Tax Policy (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:13-33

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