Working Paper: CEPR ID: DP15845
Authors: Odhran Bonnet; Guillaume Chapelle; Alain Trannoy; Etienne Wasmer
Abstract: Land is back. The increase in wealth in the second half of 20th century arose from housing and land. It should be taxed. We introduce land and housing structures in Judd’s standard setup: first best optimal taxation is achieved with a property tax on land and requires no tax on capital. With positive taxes on housing rents, a first best is still possible but with subsidies to rental housing investments, and either with differential land tax rates or with a tax on imputed rents. It can be taxed. Even absent land taxes, one can tax it indirectly and reach a Ramsey-second best still with no tax on capital and positive housing rent taxes in the steady-state. This result extends to the dynamics under restrictions on parameters.
Keywords: capital; wealth; housing; land; optimal tax; first best; second best
JEL Codes: D63; R14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| property tax on land (R51) | first-best optimal taxation (H21) |
| positive taxes on housing rents (R21) | optimal social welfare outcomes (D69) |
| absence of land taxes (R51) | Ramsey second-best outcome (H21) |
| land as a fixed factor (Q15) | optimal taxation strategy over time (H21) |