On the distributional effects of taxing imputed rent

Abstract

Bourassa and Hendershott use data from the 1986 Income Distribution Survey in Australia to argue a case for the taxation of imputed rent on owner occupied housing. They conclude that both on equity grounds and in terms of traditional economic efficiency, taxation of imputed rental income together with deductibility of mortgage interest would be better than the current situation which does not tax imputed rental income and penalises debt. Previous claims that a tax on imputed rent would be regressive are shown to be due to failure to control for life cycle effects and, more importantly mismeasurement of income.