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Relative consumption of housing: marginal saving subsidies and income taxes as a second-best policy?
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics. Tromsø University Business School, Tromsø, Norway.
2015 (English)In: Journal of Economic Behavior and Organization, ISSN 0167-2681, Vol. 116, 439-450 p.Article in journal (Refereed) Published
Abstract [en]

This paper analyzes whether marginal taxation of labor and capital income are useful second best instruments for internalizing the externalities caused by conspicuous housing consumption, when the government is unable to implement a first best corrective tax on housing wealth. The rationale for studying income taxation in this particular context is that first best taxes on housing wealth may be infeasible (at least in a shorter time perspective), while income taxes indirectly affect both the level and composition of accumulated wealth. We show that a suboptimally low tax on housing wealth provides an incentive for the government to subsidize financial saving and tax labor income at the margin.

Place, publisher, year, edition, pages
Elsevier, 2015. Vol. 116, 439-450 p.
Keyword [en]
relative consumption, housing, taxation, behavioral economics
National Category
URN: urn:nbn:se:umu:diva-107281DOI: 10.1016/j.jebo.2015.05.011ISI: 000358393000031OAI: diva2:849851
Available from: 2015-08-31 Created: 2015-08-21 Last updated: 2015-08-31Bibliographically approved

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