Housing Policy and Redistribution
Tenhunen, Sanna; Tuomala, Matti (2007)
This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.
Julkaisun pysyvä osoite on
The potential redistributive role of the housing subsidies has got a relatively little attention in the literature. However, non-linear housing subsidy schemes are commonly used by many countries. We consider the question of the optimal tax treatment of housing in a model where agents di¤er in two dimensions; ability and the housing price they face. The problem is also solved numerically. In addition to a general four-type model, we also considered two extensions: endogenously determined housing prices and paternalistic government. The key lesson from the paper is that when individuals differ also in access to housing, the housing subsidy schemes have a redistributive role and they are non-linear. A justification for subsidizing or taxing housing holds also without introducing any merit good argument to the analysis; in the optimal tax model where agents di¤er in their abilities and access to housing it is optimal to tax and subsidize housing, even with separable preferences.