The optimal tax treatment of housing capital in the neoclassical growth model

Essi Eerola*, Niku Määttänen

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

4 Citations (Scopus)

Abstract

Should housing capital be taxed like other forms of capital? We analyze this question within a version of the neoclassical growth model. We derive the optimal tax treatment of housing capital vis-à-vis business capital allowing for relatively general household preferences. In the first-best, the tax treatment of business and housing capital should always be the same. In the second-best, in contrast, the optimal tax treatment of housing capital depends on the elasticities of substitution between nonhousing consumption, housing, and leisure. This is because housing taxation may be used to alleviate the distorting effect of taxing labor. As a result, the optimal tax treatment of housing capital may be different from that of business capital. We complement these analytical results with a numerical analysis.

Original languageEnglish
Pages (from-to)912-938
Number of pages27
JournalJournal of Public Economic Theory
Volume15
Issue number6
DOIs
Publication statusPublished - Dec 2013
MoE publication typeA1 Journal article-refereed

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