International Economic Review

Investment Housing Tax Concessions and Welfare: A Quantitative Study for Australia

Yunho Cho., Shuyun May Li, & Lawrence Uren

Abstract:

This paper builds a general equilibrium OLG model with heterogeneous agents to study the welfare implications of investment housing tax concessions in Australia. Removing these concessions substantially reduces the landlord rate and the use of debt. There is a steady state welfare gain equivalent to a 0.13 percent increase in lifetime consumption if the additional tax revenue from removing the concessions is used to finance a lump-sum transfer to all households. That welfare gain rises to 1.45 percent if the extra tax revenue is used to provide a transfer to the housing-poor in the form of rental assistance. Over the transition, around 70 percent of existing households experience a welfare gain and there are important distributional effects in both cases.