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Tax Benefits to Housing and Inefficiencies in Location and Consumption

David Albouy () and Andrew Hanson ()

No 19815, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Tax benefits to owner-occupied housing provide incentives for housing consumption, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally reduce inefficiency in consumption, but increase inefficiency in location decisions, unless they are accompanied by tax-rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels.

JEL-codes: H24 H77 R13 R21 R31 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-acc, nep-pbe, nep-pub and nep-ure
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Published as Are Houses Too Big or In the Wrong Place? Tax Benefits to Housing and Inefficiencies in Location and Consumption , David Albouy, Andrew Hanson. in Tax Policy and the Economy, Volume 28 , Brown. 2014

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