A General Equilibrium Model of Housing, Taxes, and Portfolio Choice / James Berkovec, Don Fullerton.

Format:

Book

Author/Creator:

Berkovec, James Arthur

Contributor:

Fullerton, Don.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3505.

NBER working paper series no. w3505

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1990.

Summary:

We describe a model in which rental and owner housing are risky assets, tenure choice is endogenous, and each household is constrained to consume the same amount of owner housing as it has in its investment portfolio. At each iteration in the search for an equilibrium, we determine the new taxable income for each of 3,578 households (from the Survey of Consumer Finances), and we use statutory schedules to find the marginal rate and tax paid. Equilibrium net rates of return are major determinants of the amount of owner housing, but a logit model indicates that demographic factors are the main determinants of ownership rates. A simulation of taxes on owner housing raises welfare not only by re-allocating capital, but also because government takes part of the risk from individual properties and diversifies it away. Measures to disallow property tax or mortgage interest deductions do not help share this risk. Simulations of actual tax reform indicate a small shift from rental to owner housing, and welfare gains from re-allocating risk.

Notes:

November 1990.

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