Housing, Collateral Constraints, and Fiscal Policy

Year 2013, Volume: 2 Issue: 2, 53 - 81, 01.05.2013

Hamza Polattimur

Abstract

This paper studies the preferential tax treatment of housing that can be observed in many industrialized countries. It provides a rationale for it by means of an optimal taxation approach, taking into account an important feature of housing, namely its usage as collateral. In a borrower-lender framework, where private loans are assumed to be non-enforceable and have to be collateralized by housing, optimal fiscal policy should disburden constrained borrowers by subsidizing their housing.

Keywords

Housing, collateral constraints, optimal fiscal policy

Thanks

We are grateful to Andreas Schabert, Christian Bredemeier, Roland Winkler, two anonymous referees, conference participants at the International Conference on economics of the Turkish Economic Association (2012), the Doctoral Meeting of Montpellier (2013), and the Spring Meeting of Young Economists (2013) for helpful comments and suggestions. Financial support by the Collaborative Research Center’s "Statistical Modeling of Nonlinear Dynamic Processes" (SFB 823, project A4) project of the German Research foundation (DFG) is gratefully acknowledged.

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