GINI DP 29: Imputed rent and income re-ranking. Evidence from EU-SILC data

The inclusion of the in-kind housing advantage in the concept of economic well-being reduces inequality and poverty in most European countries. However, it also generates income re-ranking among households and reduces the redistributive capacity of tax systems. We calculate the proportion of households who are re-ranked due to the inclusion of imputed rent in the income concept, before and after taxes, by income quintile, tenure and age groups. We find that imputed rent re-ranks about 18% of households before taxes and 32% after taxes at European level, although the extent varies widely across countries. The analysis identifies three broad groups of countries according to the impact of imputed rent on income re-ranking for different tenure categories. In Eastern European countries, households are re-ranked more within than across tenure groups. In Southern and continental countries renters in the private market are mostly re-ranked downward and outright homeowners upward. In Nordic countries, a large share of homeowners with an outstanding mortgage is re-ranked downward, with the exception of Sweden. Older households are the ones who mostly benefit from imputed rent, again with the exception of Sweden. The paper concludes with some remarks on EU-SILC data.