Template-Type: ReDIF-Paper 1.0
Author-Name: Andrew Coleman
Author-X-Name-First: Andrew
Author-X-Name-Last: Coleman
Author-Email:  Andrew.coleman@motu.org.nz
Author-Workplace-Name: Motu Economic and Public Policy Research 
Title: Tax, Credit Constraints, and the Big Costs of Small Inflation
Abstract: This paper develops an overlapping generations model incorporating credit constraints, owner-occupier and rental sectors, and detailed tax regulations to examine how the interaction of inflation and the tax system affect the housing market. It shows that even modest rates of inflation can have very large effects on the home-ownership rates of young households, particularly at low real interest rates. This occurs even if there is a large supply response in the quantity of housing. The model suggests that the welfare costs of inflation could be ameliorated by exempting the inflation component of interest payments from income tax.
Length:  44 pages
Creation-Date:  2008-12
File-URL: https://motu-www.motu.org.nz/wpapers/08_14.pdf
Number: 08_14
Classification-JEL: E40, E58
Keywords: Inflation, credit constraints, capital income taxes, housing markets, home-ownership rates, monetary policy
Handle: RePEc:mtu:wpaper:08_14