Investment Housing Tax Concessions and Welfare: Evidence from Australia
38 Pages Posted: 6 Jan 2021
Date Written: January 6, 2021
We build a general equilibrium overlapping generations model with heterogeneous agents to study the welfare implications of housing investment tax concessions in the Australian housing market . Comparing stationary equilibria, we find that removing these concessions significantly reduces housing investment. This lowers house prices and raises rents and the home ownership rate. The steady state welfare analysis suggests that eliminating concessions leads to a welfare gain of 1.7 per cent, for which increased redistribution is a key mechanism. Along the transition, a majority of households are better off, but younger landlords and landlords with higher incomes benefit the least.
Keywords: Housing investment, Home ownership, Taxation, OLG model, Heterogeneous Agents, Welfare
JEL Classification: D15, E21, R21, R38
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