International Tax and Public Finance

, Volume 8, Issue 4, pp 621–636 | Cite as

Taxation and House-Price Uncertainty: Some Empirical Estimates

  • Steven M. Sheffrin
  • Tracy M. Turner
Article

Abstract

Purchasing a home involves a large and localized investment that leaves many families exposed to volatile house prices and at risk of losing their home equity. Price movements are typically not synchronized across cities, suggesting the potential for efficiency gains through risk sharing across households. In this paper, we consider the possibility of risk sharing through capital gains taxation. When full loss offset is permitted, potential gains and losses are reduced at the household level by taxation and distributed nationally, thereby allowing the tax authority to diversify away the local risks associated with owner-occupied housing. We simulate the effect of a capital gains tax with full loss offset on tenure choice and housing demand using micro-level data from the American Housing Survey, spanning ten years, from 1985 to 1995, and measures of time varying risk and return.

taxation housing uncertainty 

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Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Steven M. Sheffrin
    • 1
  • Tracy M. Turner
    • 2
  1. 1.College of Letters and ScienceUniversity of California at DavisUSA
  2. 2.Department of EconomicsKansas State UniversityUSA

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