Are Houses Too Big or In the Wrong Place? Tax Benefits to Housing and Inefficiencies in Location and Consumption
Chapter in NBER book Tax Policy and the Economy, Volume 28 (2014), Jeffrey R. Brown, editor (p. 63 - 96)
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 calibrated 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.
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This paper was revised on November 7, 2013
Document Object Identifier (DOI): 10.1086/675588This chapter first appeared as NBER working paper w19815, Tax Benefits to Housing and Inefficiencies in Location and Consumption, David Albouy, Andrew Hanson
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