Discussion Paper Details

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Title: Optimal Taxation with Homeownership and Wealth Inequality

Author(s): Nicola Borri and Pietro Reichlin

Publication Date: November 2019

Keyword(s): Housing, taxation and Wealth

Programme Area(s): Macroeconomics and Growth

Abstract: We consider optimal taxation in a model with wealth-poor and wealth-rich households, where wealth derives from business capital and homeownership, and investigate the consequences on these tax rates of a rising wealth inequality at steady state. The optimal tax structure includes some taxation of labor, zero taxation of financial and business capital, a housing wealth tax on the wealth-rich households and a housing subsidy on the wealth-poor households. When wealth inequality increases, the optimal balance between labor and housing wealth taxes depends on the source of the increasing wealth.

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Bibliographic Reference

Borri, N and Reichlin, P. 2019. 'Optimal Taxation with Homeownership and Wealth Inequality'. London, Centre for Economic Policy Research.