We study the effects of government intervention in the housing market on prices, quantities and welfare in a general equilibrium model with heterogeneous agents. We consider (i) the tax-deductibility of mortgage interest payments, and (ii) the exclusion of owner-occupied rents from taxation. We go beyond the existing literature and study both steady state effects as well as effects along the transition between steady states. When comparing stationary equilibria, we find that reducing asymmetries in the treatment of owner-occupied and rental housing in the tax code leads to welfare gains for all agents, as does the elimination of the mortgage interest deductibility. However, during the transition to the new steady-states, the welfare impacts are more varied. All agents benefit from the removal of the deduction of mortgage interest rates, due to general-equilibrium effects on prices and an increase in lump-sum transfers through higher government revenues. However, the introduction of taxes on imputed rents leads to significant welfare losses for all households that consume owner-occupied housing. This highlights the importance of focusing on the transition period for policy analysis.
Abstract. This paper investigates labour market dynamics in New Zealand by estimating a structural small open economy model enriched with standard search and matching frictions in the labour market. We show that the model fits the business cycle features of key macroeconomic variables reasonably well and provides an appealing monetary transmission mechanism. We then extend our analysis to examine the driving forces behind labour market variables. Our findings suggest that the bulk of variation in labour market variables is solely explained by disturbances pertaining to the labour market.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.