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The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home‐Mortgage Interest Rate ReguIation*
Author(s) -
ANSTIE ROSLYN,
FINDLAY CHRISTOPHER,
HARPER IAN
Publication year - 1983
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1983.tb00586.x
Subject(s) - economics , subsidy , interest rate , deregulation , context (archaeology) , monetary economics , inflation (cosmology) , labour economics , macroeconomics , market economy , paleontology , physics , biology , theoretical physics
Judy Yates (1981) notes the regressive redistributive impact of home‐mortgage interest rate regulation and offers some explanations. This paper provides an alternative explanation of Yates' observations in terms of the interaction of inflation with the current tax system in Australia. A model of tenure choice in the context of inflation and taxation is developed. In explaining this phenomenon, the model also establishes the regressive nature of the tax subsidy to owner‐occupation. Home‐mortgage interest rate regulation is then introduced. This reinforces the redistributive bias in the housing finance market. The model is used finally to predict the impact of deregulation. It is concluded that deregulation by itself can only remove redistributive bias resulting from regulated mortgage interest rates. Reform of the tax system is required to eliminate the regressive redistributive effects of the tax subsidy to owner‐occupation .