IDEAS home Printed from https://ideas.repec.org/a/sae/urbstu/v48y2011i8p1695-1714.html
   My bibliography  Save this article

Imputed Rental Income, Taxation and Income Distribution in Finland

Author

Listed:
  • Tuukka Saarimaa

    (The Government Institute for Economic Research (VATT), Po Box 1279, FI-001 01, Helsinki, Finland)

Abstract

In most Western countries, owner-occupied housing is tax-favoured compared with other investments and housing tenure modes. This paper analyses the effects of imputed rental income and its tax treatment on income distribution in Finland. Using household data from the 2004 Wealth Survey produced by Statistics Finland, it is found that imputed rental income has a major effect on homeowners’ well-being as it constitutes on average almost 10 per cent of homeowner households’ disposable income. Furthermore, including imputed rental income in household disposable income decreased overall inequality measured by the Gini index. The tax subsidy resulting from non-taxation of imputed rental income is skewed towards high-income households. However, the effects of a new tax on imputed rental income on overall inequality would depend vitally on the way the increased government tax revenue is transferred back to the households.

Suggested Citation

  • Tuukka Saarimaa, 2011. "Imputed Rental Income, Taxation and Income Distribution in Finland," Urban Studies, Urban Studies Journal Limited, vol. 48(8), pages 1695-1714, June.
    • Handle: RePEc:sae:urbstu:v:48:y:2011:i:8:p:1695-1714
    DOI: 10.1177/0042098010377474
    as

    Download full text from publisher

    File URL: http://usj.sagepub.com/content/48/8/1695.abstract
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0042098010377474?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eerola Essi & Määttänen Niku, 2006. "On the Political Economy of Housing's Tax Status," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(2), pages 1-32, September.
    2. Garner, Thesia I. & Short, Kathleen, 2009. "Accounting for owner-occupied dwelling services: Aggregates and distributions," Journal of Housing Economics, Elsevier, vol. 18(3), pages 233-248, September.
    3. Yannis M. Ioannides & Jeffrey E. Zabel, 2003. "Neighbourhood effects and housing demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(5), pages 563-584.
    4. Edward L. Glaeser & Jesse M. Shapiro, 2003. "The Benefits of the Home Mortgage Interest Deduction," NBER Chapters, in: Tax Policy and the Economy, Volume 17, pages 37-82, National Bureau of Economic Research, Inc.
    5. Joachim R. Frick & Markus M. Grabka, 2003. "Imputed Rent and Income Inequality: A Decomposition Analysis for Great Britain, West Germany and the U.S," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(4), pages 513-537, December.
    6. Skinner, Jonathan, 1996. "The dynamic efficiency cost of not taxing housing," Journal of Public Economics, Elsevier, vol. 59(3), pages 397-417, March.
    7. Cremer, Helmuth & Gahvari, Firouz, 1998. "On Optimal Taxation of Housing," Journal of Urban Economics, Elsevier, vol. 43(3), pages 315-335, May.
    8. Rosen, Harvey S., 1985. "Housing subsidies: Effects on housing decisions, efficiency, and equity," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 7, pages 375-420, Elsevier.
    9. Judith Yates, 1994. "Imputed Rent And Income Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(1), pages 43-66, March.
    10. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
    11. Gervais, Martin, 2002. "Housing taxation and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1461-1489, October.
    12. Linneman, Peter, 1985. "An economic analysis of the homeownership decision," Journal of Urban Economics, Elsevier, vol. 17(2), pages 230-246, March.
    13. Ioannides, Yannis M., 2004. "Neighborhood income distributions," Journal of Urban Economics, Elsevier, vol. 56(3), pages 435-457, November.
    14. Hills, John, 1991. "Distributional effects of housing subsidies in the United Kingdom," Journal of Public Economics, Elsevier, vol. 44(3), pages 321-352, April.
    15. Onrubia, Jorge & Rodado, M. Carmen & Ayala, Luis, 2009. "How do services of owner-occupied housing affect income inequality and redistribution?," Journal of Housing Economics, Elsevier, vol. 18(3), pages 224-232, September.
    16. Philippe Thalmann, 2007. "Tenure-neutral and Equitable Housing Taxation," Urban Studies, Urban Studies Journal Limited, vol. 44(2), pages 275-296, February.
    17. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-625, April.
    18. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
    19. Aaron, Henry, 1970. "Income Taxes and Housing," American Economic Review, American Economic Association, vol. 60(5), pages 789-806, December.
    20. John Harding & Thomas J. Miceli & C.F. Sirmans, 2000. "Do Owners Take Better Care of Their Housing Than Renters?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(4), pages 663-681.
    21. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
    22. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
    23. repec:bla:revinw:v:29:y:1983:i:4:p:405-27 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erlend Eide Bø, 2020. "Taxation of Housing: Killing Several Birds with One Stone," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(3), pages 534-557, September.
    2. Fessler, Pirmin & Rehm, Miriam & Tockner, Lukas, 2014. "The impact of housing non-cash income on the unconditional distribution of household income in Austria," Working Paper Series 1718, European Central Bank.
    3. Rik de Boer & Rosamaria Bitetti, 2014. "A Revival of the Private Rental Sector of the Housing Market?: Lessons from Germany, Finland, the Czech Republic and the Netherlands," OECD Economics Department Working Papers 1170, OECD Publishing.
    4. Kortelainen, Mika & Saarimaa, Tuukka, 2012. "Do homeowners benefit urban neighborhoods? evidence from housing prices," LSE Research Online Documents on Economics 57923, London School of Economics and Political Science, LSE Library.
    5. Tuukka Saarimaa & Mika Kortelainen, 2012. "Do Homeowners Benefit the Neighborhood? Evidence from Semiparametric Hedonic Regressions," ERSA conference papers ersa12p472, European Regional Science Association.
    6. John Gibson & Bonggeun Kim, 2018. "Home Ownership and Political Participation: Longitudinal Evidence Suggests There is No Causal Relationship," Working Papers in Economics 18/02, University of Waikato.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Figari, Francesco & Paulus, Alari & Sutherland, Holly & Tsakloglou, Panos & Verbist, Gerlinde & Zantomio, Francesca, 2012. "Taxing Home Ownership: Distributional Effects of Including Net Imputed Rent in Taxable Income," IZA Discussion Papers 6493, Institute of Labor Economics (IZA).
    2. Antonia Diaz & Maria Jose Luengo Prado, 2008. "On the User Cost and Homeownership," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 584-613, July.
    3. Simone Pellegrino & Massimiliano Piacenza & Gilberto Turati, 2011. "Assessing the Distributional Effects of Housing Taxation in Italy: From the Actual Tax Code to Imputed Rent," CESifo Working Paper Series 3368, CESifo.
    4. Kortelainen, Mika & Saarimaa, Tuukka, 2012. "Do homeowners benefit urban neighborhoods? evidence from housing prices," LSE Research Online Documents on Economics 57923, London School of Economics and Political Science, LSE Library.
    5. Frick, Joachim R. & Grabka, Markus M. & Smeeding, Timothy M. & Tsakloglou, Panos, 2010. "Distributional Effects of Imputed Rents in Five European Countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 19(3), pages 167-179.
    6. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, August.
    7. Philippe Bracke & Christian Hilber & Olmo Silva, 2014. "Homeownership and Entrepreneurship: The Role of Mortgage Debt and Commitment," CESifo Working Paper Series 5048, CESifo.
    8. Jonathan Halket & Lars Nesheim & Florian Oswald, 2020. "The Housing Stock, Housing Prices, And User Costs: The Roles Of Location, Structure, And Unobserved Quality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1777-1814, November.
    9. repec:spo:wpmain:info:hdl:2441/4dp533k0lq8dgrbgue1eid6mk1 is not listed on IDEAS
    10. Serena Fatica & Doris Prammer, 2018. "Housing and the Tax System: How Large Are the Distortions in the Euro Area?," Fiscal Studies, John Wiley & Sons, vol. 39(2), pages 299-342, June.
    11. Erlend Eide Bø, 2020. "Taxation of Housing: Killing Several Birds with One Stone," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(3), pages 534-557, September.
    12. Jonathan Halket & Lars Nesheim & Florian Oswald, 2015. "The housing stock, housing prices, and user costs," SciencePo Working papers Main hal-03393224, HAL.
    13. Elias Oikarinen, 2008. "Empirical application of the housing-market no-arbitrage condition: problems, solutions and a Finnish case study," Discussion Papers 39, Aboa Centre for Economics.
    14. Peter Englund, 2003. "Taxing Residential Housing Capital," Urban Studies, Urban Studies Journal Limited, vol. 40(5-6), pages 937-952, May.
    15. repec:hal:spmain:info:hdl:2441/4dp533k0lq8dgrbgue1eid6mk1 is not listed on IDEAS
    16. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Mortgage contracts and housing tenure decisions," Working Papers 2007-040, Federal Reserve Bank of St. Louis.
    17. Erling Røed Larsen, 2009. "From data to levy design. The five stages of implementing housing taxes," Discussion Papers 596, Statistics Norway, Research Department.
    18. Philippe Thalmann, 2007. "Tenure-neutral and Equitable Housing Taxation," Urban Studies, Urban Studies Journal Limited, vol. 44(2), pages 275-296, February.
    19. Suntum, Ulrich van, 2009. "Housing, taxation and retirement provision," Journal of Housing Economics, Elsevier, vol. 18(3), pages 249-255, September.
    20. Tuukka Saarimaa & Mika Kortelainen, 2012. "Do Homeowners Benefit the Neighborhood? Evidence from Semiparametric Hedonic Regressions," ERSA conference papers ersa12p472, European Regional Science Association.
    21. Fessler, Pirmin & Rehm, Miriam & Tockner, Lukas, 2014. "The impact of housing non-cash income on the unconditional distribution of household income in Austria," Working Paper Series 1718, European Central Bank.
    22. Engelhardt, Gary V. & Eriksen, Michael D. & Gale, William G. & Mills, Gregory B., 2010. "What are the social benefits of homeownership? Experimental evidence for low-income households," Journal of Urban Economics, Elsevier, vol. 67(3), pages 249-258, May.

    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:urbstu:v:48:y:2011:i:8:p:1695-1714. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.gla.ac.uk/departments/urbanstudiesjournal .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.