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Housing Taxation and Economic Growth: Analysis of a Balanced-Growth Model with Residential Capital

Author

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  • Vinson Philip

    (School of Business, W-2101, Georgia Gwinnett College, 1000 University Center Lane, Lawrenceville, GA 30043, USA)

Abstract

Using a neoclassical model with endogenous growth, this study examines the effects of increasing housing taxation and eliminating the mortgage interest tax deduction on economic growth and household welfare in the United States. The optimal tax policy reduces taxation of income in favor of increased taxation of housing and consumption. This policy increases the growth rate by 0.49 percentage points. In addition, simply shifting the tax burden by reducing the tax rates on productive forms of capital toward housing can increase the growth rate up to 0.18 percentage points. This study also find that eliminating the income tax deduction on mortgage interest and lowering income taxes would increase growth by about 0.016 percentage points. Each of these proposed policies improves household welfare.

Suggested Citation

  • Vinson Philip, 2023. "Housing Taxation and Economic Growth: Analysis of a Balanced-Growth Model with Residential Capital," The B.E. Journal of Macroeconomics, De Gruyter, vol. 23(1), pages 181-217, January.
    • Handle: RePEc:bpj:bejmac:v:23:y:2023:i:1:p:181-217:n:4
    DOI: 10.1515/bejm-2021-0159
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    More about this item

    Keywords

    macroeconomics; growth; taxation;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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