NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Introducing Risky Housing and Endogenous Tenure Choice into Portfolio- Based General Equilibrium Models

Patric H. Hendershott, Yunhi Won

NBER Working Paper No. 3114 (Also Reprint No. r1755)
Issued in September 1989
NBER Program(s):Public Economics Program

Portfolio-based general equilibrium models are useful for analyzing the interaction between the structure of individual tax rates and the way

particular assets are taxed, for considering the role of differential tax rules and risk in determining household portfolio choices, and for addressing distributional questions. Unfortunately, current versions of these models give housing short shrift; owner housing is assumed to be riskless, rental housing is not a separately identifiable asset, and tenure choice is of necessity exogenously determined. This paper shows how these models can be extended to incorporate a full housing subsector and uses an extended version of the Galper-Lucke-Toder (GLT) model to analyze the impact of the 1986 Tax Act. The interest rate impacts of the extended model are similar to those of GLT: a sharp decline in the fully taxable rate (just over a percentage point), a noticeable fall in the corporate equity rate (two-thirds of a point) and increases in the returns on noncorporate equity and tax-exempt bonds. The capital stock effects are different owing to endogenous tenure choice, the riskiness of owner housing, and the smaller initial holdings of owner housing by high income households. The owner housing stock increases by 3 percent, the increase corning roughly 50/50 from rental housing and state and local capital. The homeownership rate rises by one-half percentage point, virtually all of the increase occurring for households with incomes under $30,000. The small utility gains, $14 billion, are roughly comparable to those of the GLT model. While most of the gains go to high income households, other households also gain, unlike the results originally reported in GLT, which contained computational errors.

download in pdf format
   (283 K)

download in djvu format
   (182 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3114

Published: Journal of Public Economics 48, pp. 293-316 (1992). August 1992

Users who downloaded this paper also downloaded* these:
Berkovec and Fullerton w3505 A General Equilibrium Model of Housing, Taxes, and Portfolio Choice
Rosen, Rosen, and Holtz-Eakin w1168 Housing Tenure, Uncertainty, and Taxation
Freeman and Rebick w2963 Crumbling Pillar? Declining Union Density in Japan
Haurin and Hendershott w1695 Affordability and the Value of Seller Financing
Borghans, Gielen, and Luttmer w18261 Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us