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Title: Taxes, Housing Benefits, and Inefficiencies in Location and Consumption

Citation Type: Miscellaneous

Publication Year: 2011

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Abstract: Federal taxes penalize individuals for living in high-wage areas, while tax-benefits to owner occupied housing subsidize them for living in high-cost areas and subsidize the consumption of housing. As a result, productive areas are under-populated and housing is consumed at inefficiently high levels. Simulation results show the existing system of income taxation with tax-benefits for owner occupied housing causes $38 billion in deadweight loss from housing over consumption, and an additional $12 billion in deadweight loss from locational choice decisions. We show that eliminating mortgage interest and property tax deductions would reduce inefficiency in housing consumption and increase it in locational choice, with the net effect being a reduction in deadweight loss. We also show that a reform indexing income taxation to local wage levels while eliminating preferential tax treatment for owner occupied housing would lead to the largest reduction in deadweight loss of all reforms we consider.

Url: https://pdfs.semanticscholar.org/3de4/43ea2b09815ddc5d1c06a26a753dae2f7c81.pdf

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Authors: Albouy, David; Hanson, Andrew

Publisher: University of Michigan and NBER

Data Collections: IPUMS USA

Topics: Other

Countries: United States