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Economic well-being and distributional effects of housing-related policies in 3 EU countries

Virginia MaestriAIAS – University of Amsterdam

2nd Microsimulation research workshop Bucharest, 11-12 October 2012

+Introduction and motivation

Increasing importance of housing (wealth, spending)

Role of policy (favorable tax treatment of housing)

Cross-country differences in housing policies and tenure structure

The different aims of housing-related policies: re-pricing, tax revenues, redistribution

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Aim of the paper

Extend the existing literature by considering a comprehensive set of housing policies together with imputed rent

Impact of each housing-related policies on inequality and poverty

Impact of housing-related policies on different tenure and age groups

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Data and methodology

Input data Euromod 3+: 2006 EE-SILC & IT-SILC, 2003 UK FRS (IR and paid property taxes)

Benefit incidence approach

Distinction between market and social imputed rent

Quantile (extended) income share at each step, inequality and poverty, by age and tenure groups

Original market income (A1)

Original market income plus private imputed rent (A2)

Income net of taxes and benefits, excluding those housing-related (B1)

Income net of taxes and benefits, excluding those housing-related plus private imputed rent (B2)

B2 plus mortgage interests deductions (C)

C plus other housing-related deductions (D)

D minus property tax (E)

E plus deduction for property tax (F)

F plus housing benefits (G)

G plus social imputed rent (H)

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Overview of housing policies & IR

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Results - Estonia

IR reduces inequality by 15-10% and poverty by 17-22% and the redistributive power of taxes

Limited effect of mortgage relief, Land tax and social IR

Small redistributive effect of housing benefits and on poverty and inequality

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Results - IT

IR reduces inequality by 8-2%, slightly poverty and the redistributive power of taxes

No effect of mortgage and other reliefs, property tax and housing benefits (small)

Property tax slightly increases the poverty rate

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Results – UK

IR reduces inequality by 5-4%, poverty by <1% but not the poverty reduction power of taxes

The Council tax is regressive, even after the deduction but this reduces poverty

Housing benefits and social IR reduce inequality and considerably poverty (-40%), but reranking

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Results by tenure group

Within > between inequality

Winners: outright owners in IT, & free tenants in EE, & social tenants in UK

Losers: owners with mortgage in UK and EE, private tenants in IT and EE

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Results by age group

Within > between inequality

Winners: over 60 year-old

Losers: under 40 in EE, 40-60 in UK, both age groups in IT

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

ESTONIA

age grY grYIRpriv netY netYIRpriv MortDed PrTax HouseBen IRsoc allHP

under 40 42.5 -2.8 -4.7 -3.7 0.1 0 0 0 -1.8 40-60 47.7 -0.9 -5.1 -4.1 0 0 0 0 0.1 over 60 9.7 3.8 9.8 7.8 0 0 0 0 1.7 HSCVbtw 0.06 0.03 0.01 0 0 0 0 0 0 HSCVwit 0.41 0.31 0.22 0.18 0.18 0.18 0.18 0.17 0.17

ITALY

age grY grYIRpriv netY netYIRpriv MortDed Refurb PrTax HousBen allHP

under 40 32.1 -1.3 -4.5 -4 0 0 0.1 0 -0.7 40-60 55.6 -1.5 -9.4 -8.3 0 0 0 0 -0.5 over 60 12.2 2.8 13.9 12.3 0 0 -0.1 0 1.2 HSCVbtw 0.06 0.04 0 0 0 0 0 0 0 HSCVwit 0.56 0.48 0.24 0.22 0.22 0.22 0.22 0.22 0.22

UK

age grY grYIRpriv netY netYIRpriv PrTax dedPrTax HouseBen IRsoc allHP

under 40 36.6 -1 -1.9 -1.9 0.1 0 0.3 0.1 -0.5 40-60 51.5 -0.6 -4.9 -4.7 0.2 -0.1 -0.5 -0.2 -0.9 over 60 11.9 1.6 6.9 6.6 -0.3 0.2 0.2 0 1.5 HSCV btw 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 HSCV wit 0.66 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

+Comparative assessment of HP

Housing-related policies are the most effective in reducing inequality in EE (-11%) and poverty in UK (-56%), small effect in IT

Housing policies are a more important tool for reducing inequality (-7%) and poverty (-46%) than imputed rent only in the UK (fig)

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries

+Conclusions

Housing polices are relevant for reducing inequality and poverty in UK, poverty in EE, not relevant in IT

Common features: the design of property taxes is not progressive, inequality is higher within than between tenure categories, housing-related policies follow a life-cycle redistributive pattern

The redistributive effect of housing policies mirrors the the size of public expenditure on housing

The importance of the non-progressive effect of property taxes reflects the relative importance of property taxes in total tax revenues

Limitation of analysis: static, no capital gains & transaction taxes

Policy debate on housing taxation

V. Maestri, AIAS-UvA - Economic well-being and housing-related policies in 3 EU countries