Housing Taxation, Financial Regulation and Welfare

This paper studies the effects on macroeconomic aggregates of permanent changes in housing taxes and tax deductions, and in banking regulation through the lens of a multi-agent dynamic general equilibrium model.... [ view full abstract ]

This paper studies the effects on macroeconomic aggregates of permanent changes in housing taxes and tax deductions, and in banking regulation through the lens of a multi-agent dynamic general equilibrium model. Specifically, the housing taxes that are examined consist in the property and land transfer taxes, and the tax deductions are the ones that are attached to the mortgage interest rate and imputed rental income. Our main result is that borrowing-constrained bankers play an important role for housing dynamics and for welfare improvements. Policies that change housing taxes, tax deductions, and banking requirements so that tax revenues are raised all lead to a greater GDP, and are welfare-improving for homeowners, but welfarediminishing for renters.