The Optimal Tax Treatment of Housing Capital in the Neoclassical Growth Model

Eerola, Essi; Määttänen, Niku

doi:10.1111/jpet.12041

Cited by 19 publications

(10 citation statements)

References 40 publications

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“…The model leaves aside residential land to focus on land consumed by firms. Eerola and Määttänen (2013) on the other hand, address specifically the question of housing taxation. They develop a model with a representative agent that derives utility from nonhousing consumption, leisure and housing which is only composed by its structure and has no land component 26 .…”

Section: Literature Reviewmentioning

confidence: 99%

Land is back, it should be taxed, it can be taxed

Bonnet

Chapelle

Trannoy

et al. 2021

European Economic Review

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Section: Literature Reviewmentioning

confidence: 99%

Land is back, it should be taxed, it can be taxed

Bonnet

Chapelle

Trannoy

et al. 2021

European Economic Review

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“…Finally in Section IV, I incorporate the estimates from Section III into the calibration of an optimal growth model with elastic labor supply and measure the welfare implications of shifting the tax burden from income derived from assets to labor earnings. As has been demonstrated in previous studies by Coleman (2000), Domeij and Heathcote (2004), Eerola and Määttänen (2013), Irohoroglu (1998), Laitner (1995), and Lucas (1990), the prevailing rate of tax on asset income is sufficiently high in the United States that in the context of a representative agent framework, eliminating it completely and shifting the burden to labor income has the potential to generate a substantial positive welfare benefit. Qualitatively this effect is retained, but if government consumption flows are directly related to economic activity (production or capital accumulation) the magnitude of the benefit will be significantly smaller.…”

Section: Introductionmentioning

confidence: 66%

The Optimal Taxation of Asset Income When Government Consumption Is Endogenous: Theory, Estimation and Welfare

Ben-Gad

2017

Economic Inquiry

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This paper derives the Ramsey optimal policy for taxing asset income in a model where government expenditure is a function of net output or the inputs that produce it. Extending Judd (1999), I demonstrate that the canonical result that the the optimal tax on capital income is zero in the medium to long term is a special case of a more general model. Employing a vector error correction model to estimate the relationship between government consumption and net output for the United States between 1947Q1 to 2013Q2, I demonstrate that this special case is empirically implausible, and show how the cointegrating vector can be used to determine the optimal tax schedule. I simulate a version of the model using the empirical estimates to measure the welfare implications of changing the tax rate on asset income, and contrast these results with those generated in a version of the model where government consumption is purely exogenous. The shifting pattern of welfare measurements confirms the theoretical results. I calculate that the prevailing effective tax rate on net asset income in the US between 1995 and 2011 averaged 0.441. Hence abolishing the tax completely does generate welfare improvements, though only by the equivalent of less than a one percent permanent increase in consumption-less than a third the implied welfare benefit when the endogeneity of the government consumption is ignored. The maximum welfare improvement from shifting part of the burden of tax from capital to labour is the equivalent of a permanent increase in consumption of between only 1.173 and 1.304% and is attained when the tax rate on asset income is lowered to between 0.18 and 0.2. Allowing the tax rate to vary over time raises the maximum welfare benefit to 1.31%. All the results are very robust to a wide range of elasticities of labour supply.JEL classification: E62, H21, H50

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“…Real estate tax is generally expected to have a very low elasticity of supply, making it attractive for fiscal consolidation (Eerola & Määttänen, 2013). However, the mixture of income tax, value tax and quantity tax, which characterises property tax in practice, does in fact result in rollover processes.…”

Section: Property Taxmentioning

confidence: 99%

Higher Taxes for Fiscal Consolidation? Expected and Unexpected Effects of Municipal Tax Policy

Hesse

2021

Int Adv Econ Res

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During episodes of fiscal consolidation in public budgets, there are different instruments to choose from. The literature shows broad consensus that expenditure cuts are preferred, whereas tax increases tend not to support the fiscal aim. The paper examines instruments for fiscal consolidation at the municipal level in Germany presenting theoretical and empirical findings in favor of revenue-based instruments, focusing on the case of municipalities in the Free State of Saxony. German municipalities can autonomously control several positions on both the expenditure side and the revenue side. Options for expenditure cuts are given both for voluntary and compulsory tasks. On the revenue side, municipalities have the opportunity to set assessment rates on both local trade taxes and property taxes. For this part of the consolidation process, the prevailing opinion is that higher taxes are offset by lower grants, which is not the case in reality. Nevertheless, there are cannibalization effects to consider that may induce primary effects in the short and medium term. Hence, the paper shows an updated view of the drawbacks and opportunities of revenue-based fiscal consolidation. The paper provides evidence for an economic and political discussion that predominantly focuses strongly on the harmful effects of tax increases on the economy.

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The Optimal Tax Treatment of Housing Capital in the Neoclassical Growth Model

Cited by 19 publications

References 40 publications

Land is back, it should be taxed, it can be taxed

Land is back, it should be taxed, it can be taxed

The Optimal Taxation of Asset Income When Government Consumption Is Endogenous: Theory, Estimation and Welfare

Higher Taxes for Fiscal Consolidation? Expected and Unexpected Effects of Municipal Tax Policy

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