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Housing Taxation and Economic Growth: Analysis of a Balanced-Growth Model with Residential Capital

Housing Taxation and Economic Growth: Analysis of a Balanced-Growth Model with Residential Capital AbstractUsing a neoclassical model with endogenous growth, this study examines the effects of increasing housing taxation and eliminating the mortgage interest tax deduction on economic growth and household welfare in the United States. The optimal tax policy reduces taxation of income in favor of increased taxation of housing and consumption. This policy increases the growth rate by 0.49 percentage points. In addition, simply shifting the tax burden by reducing the tax rates on productive forms of capital toward housing can increase the growth rate up to 0.18 percentage points. This study also find that eliminating the income tax deduction on mortgage interest and lowering income taxes would increase growth by about 0.016 percentage points. Each of these proposed policies improves household welfare. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Housing Taxation and Economic Growth: Analysis of a Balanced-Growth Model with Residential Capital

Vinson, Philip
The B.E. Journal of Macroeconomics , Volume 23 (1): 37 – Jan 1, 2023
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Publisher
de Gruyter
Copyright
© 2022 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2021-0159
Publisher site
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Abstract

AbstractUsing a neoclassical model with endogenous growth, this study examines the effects of increasing housing taxation and eliminating the mortgage interest tax deduction on economic growth and household welfare in the United States. The optimal tax policy reduces taxation of income in favor of increased taxation of housing and consumption. This policy increases the growth rate by 0.49 percentage points. In addition, simply shifting the tax burden by reducing the tax rates on productive forms of capital toward housing can increase the growth rate up to 0.18 percentage points. This study also find that eliminating the income tax deduction on mortgage interest and lowering income taxes would increase growth by about 0.016 percentage points. Each of these proposed policies improves household welfare.

Journal

The B.E. Journal of Macroeconomics – de Gruyter

Published: Jan 1, 2023

Keywords: macroeconomics; growth; taxation; E6; H2; H3; O4

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