Working Paper: NBER ID: w19815
Authors: David Albouy; Andrew Hanson
Abstract: Tax benefits to owner-occupied housing provide incentives for housing consumption, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally reduce inefficiency in consumption, but increase inefficiency in location decisions, unless they are accompanied by tax-rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels.
Keywords: Housing tax benefits; Location efficiency; Consumption efficiency; Tax reform
JEL Codes: H24; H77; R13; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Housing tax benefits (H20) | Housing consumption (R21) |
| Housing consumption (R21) | Inefficiencies in location decisions (R32) |
| Reductions in housing tax benefits (H31) | Reduction in inefficiency in consumption (D61) |
| Reductions in housing tax benefits (H31) | Increase in inefficiency in location decisions (R32) |
| Eliminating tax benefits (H20) | Improvement in overall efficiency (D61) |
| Eliminating tax benefits (H20) | Reduction in locational inefficiencies (D61) |
| Federal taxes + Housing benefits (H53) | Consumption and location decisions (R22) |