Working Paper: NBER ID: w0929
Authors: Patric H. Hendershott; Joel Slemrod
Abstract: Owner-occupied housing is said to be favored in the tax code because mortgage interest and property taxes can be deducted in the computation of one's income tax base in spite of the fact that the returns from owner- occupied housing = not taxed. The special tax treatment reduces the user cost of capital for owner-occupied homing. The issue treated in this paper is the measurement of the tax rate to be employed in the user cost calculations. It is argued that different tax rates am appropriate for the tenure choice and quantity-demanded decisions, and that these values depend on the detailed tax position of the household and the method of finance. Average 1977 tax rates for households in different income ranges are calculated using the NBER TAXSIM microeconomic data file on individual tax returns
Keywords: taxes; user cost of capital; owner-occupied housing
JEL Codes: H24; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax treatment of owner-occupied housing (H24) | lower user cost of capital (G31) |
| lower user cost of capital (G31) | higher homeownership rates (R21) |
| average tax savings per dollar of expense (H20) | tenure choice (R21) |
| tax saving from marginal housing expenses (D14) | quantity demanded decision (J23) |