Journal of Urban Economics

Published by Elsevier
Online ISSN: 1095-9068
Print ISSN: 0094-1190
Publications
PIP An econometric model of suburbanization in the United States is developed. The model is used to analyze changes in location of the population, classified by income and race, and of employment in 106 large SMSAs over the period 1960-1970. The results confirm that the differential mobility of upper-income and white residents has been a powerful force concentrating low-income and nonwhite residents in central cities. The interaction of population and employment location is confirmed.
 
PIP The author attempts to establish whether the recent increases in some population subgroups in central cities in the United States is the start of a trend or a temporary phenomenon. Data are from the 1970 and 1980 censuses. The author concludes that the increase is a temporary one that is primarily due to an increase in the size of certain cohorts. The overriding trend is toward suburbanization, and the author concludes that the increase in central city populations will cease as cohorts decline in size.
 
Populations and Growth Rates for Selected Ghanaian Cities
Present and Planned Future Maximum Population Figures by Sectors According to the 1958 Plan for Accra- -
Parameters of the Expression y = A,e -hx for Five Ghanaian Cities
Average Population Density Gradients for Cities for Selected Countries
PIP An attempt is made to provide some evidence on the population density functions of African cities. The data concern Ghana and are taken from a variety of official sources. Some comparisons are made with density functions for other cities around the world.
 
"This paper demonstrates that jobs and wages are considerably more important than location-specific amenities in explaining net metropolitan migration of employed persons [in the United States]. These results, which are derived mainly from a unique set of annual migration data, differ considerably from the earlier findings of P. E. Graves...that show amenities to be powerful contributors to the analysis of net metropolitan migration. Several hypotheses are offered and tested to explain the appreciable difference between Grave's results and those of the present study, but the importance of economic factors as opposed to amenities persists."
 
PIP A model of intra-urban migration is formulated and estimated using the same principles that are employed in deriving inter-regional migration models. The model, which emphasizes the relationship between migration and neighborhood amenities, is applied to data for the city of Tel Aviv, Israel. The results confirm the importance of neighborhood amenities in determining intra-urban migration patterns.
 
This paper demonstrates that because of the rules used to delineate census tracts, unweighted estimation of an urban population density function using census tract observations leads to a severe upward bias in the estimated function. A weighted estimation procedure which leads to an unbiased estimate is proposed. The paper also points out that if one computes the integral of an unbiased estimate of a density function over the area of a city, that integral is not necessarily an unbiased estimate of total population. The paper thus explains the “disturbing” empirical results concerning density functions reported by McDonald and Bowman.
 
"In this paper we [propose] a new procedure for estimating population density functions under conditions that the exact location of the CBD [central business district] is unknown or uncertain. As such it can also be utilized as a method for identifying the location of the CBD....[We apply] this method to cross-sectional data from Tel-Aviv-Yafo [Israel] during 1961 through 1990...."
 
PIP Using data collected from household interviews in a 1965 San Francisco Bay Area Transportation Study, a probabilistic model is developed to explain the relationship between population movement and the capitalization of changes in the public sector in the price of housing. This model is constructed to compare 2 competing explanations for the flight of higher income households to the suburbs: 1) the accessibility model and 2) the flight from blight model. The accessibility model explains the decay of cities as a natural outgrowth of decreasing transportation costs, whereas the flight from blight model suggests that the wealthy leave the central city for the suburbs because of urban decay. An analysis of the San Francisco data demonstrates that high income households are more sensitive than the rest of the population to changes in the median income of the neighborhood and in expenditures and general government and education, but less sensitive to changes in property tax rate and expenditures on public safety, parks, and recreation. It is unlikely that undesirable changes in the public sector will result in a mass exodus of higher income households; capitalization in the price of housing appears sufficient to prevent this. The 2 models combined help explain the flight from the central cities, while the combined variables increase the logit estimation's prediction of bids for housing.
 
Modelling the geographic distribution of urban population densities has been attempted in several ways. Recently a controversy emerged in the Journal of Urban Economics regarding whether or not calibrations of these models render unbiased parameter estimates. Three sources of bias were dealt with in these discussions, namely (1) model specification error, (2) the estimation procedure employed, and (3) the definition of areal unit observation size. Additional sources of bias overlooked in this controversy include the presence of multiple centers in a city, and the existence of externalities. This paper explores these additional sources, from both a conceptual and an empirical point of view.
 
Using U.S. Census microdata, we show that, on average, workers change occupation and industry less in more densely populated areas. The result is robust to standard demographic controls, as well as to including aggregate measures of human capital and sectoral mix. Analysis of the displaced worker surveys shows that this effect is present in cases of involuntary separation as well. On the other hand, we actually find the opposite result (higher rates of occupational and industrial switching) for the subsample of younger workers. These results provide evidence in favor of increasing-returns-to-scale matching in labor markets. Results from a back-of-the-envelope calibration suggest that this mechanism has an important role in raising both wages and returns to experience in denser areas.
 
"The Pareto Law of Income Distribution is applied to the analysis of city size structures. Particular concern is focused on the Pareto coefficient as a measure of interurban concentration, and on how this varies through time within a nation. On the basis of evidence from 12 nations, it is argued that over time a nation tends to display a U-shaped pattern in the degree of interurban concentration, and that the higher a nation's overall level of development, the more advanced it will be in the sequence of concentration. Consideration is given to the possibility of supporting these conclusions through cross-sectional analysis among nations. The various bases for the proposed temporal pattern of concentration within a nation are then explored."
 
PIP The central thesis of this paper is that the prices people pay for housing can be used to determine whether the movement of population to the suburbs is caused primarily by attraction to suburban advantages or by the desire to escape deteriorating conditions in the central city. Estimates of the coefficients indicating the price of central city versus suburban housing in the United States are presented and analyzed using a regression model.
 
A nonlinear, three-sector, two-region wage and price endogenous dynamic general equilibrium model is used to study the effects of population growth, the pattern of demand, and technological change on urbanization in the context of a low-income developing country starting at a low level of urbanization. The model represents a closed economy and is therefore more suited to a large country. It is validated on Indian data and traces its development path well from 1950 to the present. The sectors modeled are agriculture, industry, and services with the latter two being located exclusively in urban areas. The three sectors are linked with an input-output matrix which subsumes transportation costs incurred between urban and rural areas. The model is designed to investigate long-term changes, e.g., over a 30-year period, and factor mobility is therefore assumed to be “almost perfect.” The model demonstrates that rapid agricultural productivity growth, high rates of investment, and Engel demand effects combine to produce a continuing increase of urbanization as development occurs in an economy. The rate of urbanization is not necessarily dependent on high overall population growth: indeed, under certain conditions, a lowering of overall population growth might speed up the rate of urbanization. The pattern of demand and changes in the pattern can affect the rate of urbanization significantly: in particular, Engel-type demand changes serve to make the process of urbanization logistic. Technological bias effects are not very strong but effective appropriate technology policies might speed up urbanization.
 
PIP An application of the switching regression technique in the field of urban economics is presented. The technique is applied to the study of urban population density functions, which recent research has suggested are inherently discontinuous. The method of switching regression developed by Quandt is used to estimate density functions for selected U.S. urban areas. The results show that population density contours are highly irregular, and also that the model selection approach can be used to select the number of regimes in a switching model when this number is unknown.
 
"We examine spatial patterns and their changes during the 1970s for the Los Angeles region, by estimating monocentric and polycentric density functions for employment and population. Downtown Los Angeles is clearly identified as the statistical monocentric center of the region, and it is the most consistently strong center in the polycentric patterns. Polycentric models fit statistically better than monocentric models, and there was some shift in employment distribution toward a more polycentric pattern. These findings verify the existence of polycentricity in Los Angeles and demonstrate for the first time that employment and especially population follow a polycentric pattern based on exogenously defined employment centers. The results confirm that both employment and population became more dispersed during the 1970s."
 
PIP The author presents a demand-oriented model of metropolitan growth with explicit regard to urban unemployment and spatial growth. The long-term behavior of several factors, including population, is examined in response to exogenous demand growth for output.
 
PIP This paper presents the 1st reasonably comprehensive survey of empirical research of urban population densities since the publication of the book by Edmonston in 1975. The survey summarizes contributions to empirical knowledge that have been made since 1975 and points toward possible areas for additional research. The paper also provides a brief interpretative intellectual history of the topic. It begins with a personal overview of research in the field. The next section discusses econometric issues that arise in the estimation of population density functions in which density is a function only of a distance to the central business district of the urban area. Section 4 summarizes the studies of a single urban area that went beyond the estimation of simple distance-density functions, and Section 5 discusses studies that sought to explain the variations across urban areas in population density patterns. McDonald refers to the standard theory of urban population density throughout the paper. This basic model is presented in the textbook by Mills and Hamilton and it is assumed that the reader is familiar with the model.
 
The 2000-05 housing market boom in the U.S. has caused sharp increases in residential property taxes. Housing-rich but income-poor elderly homeowners often complain about rising tax burdens, and anecdotal evidence suggests that some move to reduce their tax burden. There has been little systematic analysis, however, of the link between property tax levels and the mobility rate of elderly homeowners. This paper investigates this link using household-level panel data from the Health and Retirement Study (HRS) and a newly collected data set on state-provided property tax relief programs. These relief programs generate variation in effective property tax burdens that is not due solely to arguably endogenous local community choices about taxes and expenditure programs. The findings provide evidence suggesting that higher property taxes raise mobility among elderly homeowners. The point estimates from instrumental variable estimation using relief programs to generate instruments suggest that a $100 increase in annual property taxes is associated with a 0.73 percentage point increase in the two-year mobility rate for homeowners over the age of 50. This is an eight percent increase from the baseline two-year mobility rate of nine percent. These results are robust to alternative specifications.
 
"This paper tests a central prediction of vintage growth models of urban structure: that there are discontinuities in the population density function. The data set covers quarter sections in Chicago in 1980. Using such highly disaggregated data is critical because discontinuities are less likely to be found the larger is the unit of observation. Both a switching regression model and a nonparametric estimator reveal discontinuities and upward-sloping segments in the function, which supports the vintage growth model."
 
A simultaneous-equations econometric model is used to analyze the recent development of new towns in Israel. The focus is on the relationships among migration, industrial investment, employment, and other structural and policy variables affecting urban development. "Our results affirm the importance of economic opportunity, agglomeration effects, population socioeconomic and ethnic composition, and access in determining migration flows. At the same time, unemployment and investment indices are affected by local labor-market conditions, government incentives, and regional development effects as well as by population composition and migration flows. Policy implications of the analysis are considered."
 
The author uses data on household heads from the Public Use Sample of the 1950 U.S. census to analyze the relationship between household income and the probability of suburban residence. The results indicate that "slightly less than half of population suburbanization between 1950 and 1980 can be attributed to rising household incomes."
 
We study the effect of immigration of foreign-trained, registered nurses (RNs) on the employment and wages of US-trained RNs. We use the "area" approach and study effects of immigration in labor markets defined by the state. We find substantial evidence that immigration by foreign-trained nurses increases the supply of nurses and that this increase in supply is associated with a decrease in annual earnings. Estimates suggest that a 10 percent increase in supply due to immigration is associated with a one to four percent decrease in annual earnings.
 
This study is concerned with the welfare magnet problem, in which disparities in transfer policies across states are believed to encourage recipient and possibly resource migration. "This study clarifies the terms of the debate by showing how the value of redistributing local resources depends not only on the value of income to each group, but also on the cost of the transfer in erosion of the resource base through migration and through the general equilibrium effects of such activity on local prices." The geographical focus is on the United States.
 
"Within the conceptual framework of the Roy model, this paper provides an empirical analysis of internal migration flows [in the United States] using data from the National Longitudinal Survey of Youth. The theoretical approach highlights regional differences in the returns to skills: regions that pay higher returns to skills attract more skilled workers than regions that pay lower returns. Our empirical results suggest that interstate differences in the returns to skills are a major determinant of both the size and skill composition of internal migration flows. Persons whose skills are most mismatched with the reward structure offered by their current state of residence are the persons most likely to leave that state, and these persons tend to relocate in states which offer higher rewards for their particular skills."
 
PIP "This paper is about the determinants of growth of [U.S.] metropolitan areas (MSAs)." The authors review and evaluate the relevant literature.
 
PIP The traditional model of urbanization, in which the key assumption is that economic opportunity governs migration, is examined in the light of recent U.S. experience. The author suggests that the traditional theory does not adequately explain either shifts in forces affecting urbanization over time or the current trend of turnaround migration away from urban areas. It is shown that the determinants of migration differ substantially between growing and declining metropolitan areas and among the time periods examined.
 
"The purpose of this note is to demonstrate in a simple model that an individual's migration from a small town to a large city may be rationalized purely by a consumption motive, rather than the motive of obtaining a higher income. More specifically, it is shown that in a large city an individual may derive a higher utility from spending a given amount of income than in a small town." A formal model is first developed that includes the principal forces at work and is then illustrated using a graphic example. The theoretical and empirical issues raised are considered in the concluding section.
 
We contrast the spatial mismatch hypothesis with what we term the racial mismatch hypothesis - that the problem is not a lack of jobs, per se, where blacks live, but a lack of jobs where blacks live into which blacks are hired. We first report new evidence on the spatial mismatch hypothesis, using data from Census Long-Form respondents. We construct direct measures of the presence of jobs in detailed geographic areas, and find that these job density measures are related to employment of black male residents in ways that would be predicted by the spatial mismatch hypothesis - in particular that spatial mismatch is primarily an issue for low-skilled black male workers. We then look at mismatch along not only spatial lines but racial lines as well, by estimating the effects of job density measures that are disaggregated by race. We find that it is primarily black job density that influences black male employment, whereas white job density has little if any influence on their employment. The evidence implies that space alone plays a relatively minor role in low black male employment rates.
 
We examine Italian inflation rates and the Phillips curve with a very long-run perspective, one that covers the entire existence of the Italian lira from political unification (1861) to Italy's entry in the European Monetary Union (end of 1998). We first study the volatility, persistence and stationarity of the Italian inflation rate over the long run and across various exchange-rate regimes that have shaped Italian monetary history. Next, we estimate alternative Phillips equations and investigate whether nonlinearities, asymmetries and structural changes characterize the inflation-output trade-off in the long run. We capture the effects of structural changes and asymmetries on the estimated parameters of the inflation-output trade-off, relying partly on sub-sample estimates and partly on time-varying parameters estimated via the Kalman filter. Finally, we investigate causal relationships between inflation rates and output and extend the analysis to include the US and the UK for comparison purposes. The inference is that Italy has experienced a conventional inflation-output trade-off only during times of low inflation and stable aggregate supply.
 
In 1993, Californians voted on a school voucher initiative. We hypothesize that homeowners in good school districts understood the voucher to be a threat to their property values and thus voted against it. Precinct returns from Los Angeles County confirm this hypothesis. We also examine an alternative hypothesis explaining the relationship between school quality and precinct returns. According to the alternative, voters perceived the initiative to be a referendum on public school quality. To distinguish between the two hypotheses, we compare the voting patterns of homeowners and renters. The comparison does not favor one hypothesis over the other.
 
A model is developed for measuring the return to holding land and those returns are examined using a random coefficient estimation procedure for specific periods from 1836 to 1970. This statistical model provides a mean rate of return for land and a predictor for each time period. The results suggest that the long-term return to holding land is no higher than the rate of return to holding high-grade bonds. For shorter holding periods, the returns vary significantly.
 
This paper examines homeownership and housing demand for a sample of approximately 6800 urban, industrial workers in the United States for the period 1889/1890, using data from the Sixth and Seventh Annual Reports of the U.S. Commissioner of Labor. Tenure choice and renter demand equations are estimated, using both permanent and current income. Data limitations did not permit estimation of owner demand. The results indicate lower homeownership rates among American workers circa 1890 than later, and significant effects on ownership of income, age of household head, region, industry, occupation, ethnicity, and family size and composition. Rental prices and value/rent ratios had effects in the expected directions. Partial and full elasticities calculated for renter demand reveal downward biases if only current income is used to estimate housing demand. Comparisons of these historical data to contemporary housing information reveal greater similarities to present day developing nations than to recent U.S. data. The results indicate that modern housing demand theory performs well with historical data.
 
This report discusses a new set of annual U. S. municipal expenditure estimates. These estimates deal with the 1905–1930 period. While these expenditures are seen to be influenced by urbanization and price inflation, it is clear that real per capita spending rose substantially during the period. The distribution of municipal spending between current and capital accounts is seen to be associated with relative price change. A model of the structure of budget decisions—emphasizing an incremental budgeting format—is developed. Estimates of the structural parameters suggest that this model adequately represents the data; and that municipal decision makers responded in a regular and rational fashion to shifts in relative prices and nominal sources of funds.
 
This paper presents a discussion and estimates of a simultaneous-equations model of intrametropolitan location of population, employment, and housing. What distinguishes this work from prior research on suburbanization is that population is distinguished by income class, employment is distinguished by type, and housing is distinguished by mode (i.e., owner versus rental). The model is estimated for three distinct decades, namely, the 1950s, 1960s, and 1970s. Moreover, rather than inferring the causal linkages between population, employment, and housing from estimates of urban density functions or from relative changes in central city and suburban population, this paper utilizes data on actual movers between central cities (suburbs) and suburbs (central cities), as well as on the location of metropolitan in-migrants in the central city versus the suburban ring.
 
Net employment density and net floor space density (floor area ratio) in four employment sectors are examined for metropolitan Chicago in 1956 and 1970. The study also includes the formation and preliminary evaluation of a model of land-use intensity.
 
This paper measures the housing-market impact of state-level anti-discrimination laws in the 1960s using household-level and census-tract data. State “fair-housing” laws were the direct antecedents of the federal Fair Housing Act of 1968, and policy variation across states facilitates estimates of the laws' impact. During the 1960s, Blacks' housing-market outcomes improved relative to Whites', and the proportion of exclusively White census tracts declined markedly, but there is little evidence that the fair-housing laws contributed to those changes. There is some evidence that Black renters may have benefited from the laws, but the bulk of the evidence suggests insignificant effects on Blacks' housing-market outcomes, the level of residential segregation, and the value of property in predominantly Black neighborhoods.
 
Credit default swaps (CDS) which constitute up to 98% of credit derivatives have had a unique, endemic and pernicious role to play in the current financial crisis. However, there are few in depth empirical studies of the financial network interconnections among banks and between banks and nonbanks involved as CDS protection buyers and protection sellers. The ongoing problems related to technical insolvency of US commercial banks is not just confined to the so called legacy/toxic RMBS assets on balance sheets but also because of their credit risk exposures from SPVs (Special Purpose Vehicles) and the CDS markets. The dominance of a few big players in the chains of insurance and reinsurance for CDS credit risk mitigation for banks’ assets has led to the idea of “too interconnected to fail” resulting, as in the case of AIG, of having to maintain the fiction of non-failure in order to avert a credit event that can bring down the CDS pyramid and the financial system. This paper also includes a brief discussion of the complex system Agent-based Computational Economics (ACE) approach to financial network modeling for systemic risk assessment. Quantitative analysis is confined to the empirical reconstruction of the US CDS network based on the FDIC Q4 2008 data in order to conduct a series of stress tests that investigate the consequences of the fact that top 5 US banks account for 92% of the US bank activity in the $34 tn global gross notional value of CDS for Q4 2008 (see, BIS and DTCC). The May-Wigner stability condition for networks is considered for the hub like dominance of a few financial entities in the US CDS structures to understand the lack of robustness. We provide a Systemic Risk Ratio and an implementation of concentration risk in CDS settlement for major US banks in terms of the loss of aggregate core capital. We also compare our stress test results with those provided by SCAP (Supervisory Capital Assessment Program). Finally, in the context of the Basel
 
This article uses census tract data to examine recent trends in residential segregation by race. We find that the growing tendency toward more segregated living patterns, which characterized most of the postwar period, has been reversed. The redistribution of the white population toward more integrated neighborhoods gathered steam in the 1970s and a significant proportion of the black population shifted away from established ghetto areas. As a result, residential segregation by race was lower in 1980 than it was in 1970. Furthermore, it was lower in 1980 than it was in 1960 for the nation as a whole and for each of the census regions. But despite this progress, the majority of housing markets remain highly segregated today.
 
Analysis of selling prices of single-family homes in the City of Chicago during the period 1968–1972 confirms that, controlling for structure and other characteristics, price levels and rates of price increase were lower in black than in white neighborhoods, and that blacks were willing to pay more to move into white neighborhoods but whites showed an aversion to living in changing neighborhoods or those contiguous to black areas. Differences in price changes at the white-Latino interface indicate that the most general influence on levels and changes is neighborhood filtering among submarkets segmented by income, race, and other characteristics, but that arbitrage mechanisms must be invoked in the case of the white-black interface.
 
Using a unique data set which maintains geographic and fiscal consistency over time and across a sample of major metropolitan areas, this paper identifies those factors of economic and population decentralization which affected central city areas between 1970 and 1980. While the analysis follows the structure and format of earlier works, it differs significantly from the existing literature in its treatment of the effects of annexation. In this paper population changes are estimated for central cities and suburban areas within constant 1980 boundaries for these jurisdictions. Additionally, fiscal variables from overlapping jurisdictions are calculated for the city area rather than using only the municipal city government as the basis for fiscal variables. The empirical investigation supports the view that demographic and housing stock variables seem to have had a greater impact on decentralization than central city-suburban fiscal differences.
 
This paper reports a first application of Fair-Jaffee type short-side models of disequilibrium to the intraurban single family housing market in which the housing stock is divided into distinct geographic community areas. Data on single family dwelling transactions and prices in the city of Chicago between 1972–1976 is used to estimate four versions of the Fair-Jaffee type model. The approach allows the simultaneous estimation of the price elasticity of the demand for and offer of existing single family dwellings. The demand elasticity estimate of about −0.5 agrees with other estimates in the literature obtained from equilibrium models. The price elasticity of offer has not been previously estimated for single family dwellings. It is found to be around 2.1. Elasticities are also computed with respect to the mortgage interest rate and the intensity of transactions in the dwelling's community area. The disequilibrium models appear substantially superior to equilibrium specifications. Simulations with the estimated models predict that, in the absence of external shocks, transaction prices and quantities stabilize within 2 years.
 
Food's budget share for blacks fell substantially relative to that of whites from 1974 to 1991. Much of this decline cannot be explained by improvements in blacks' CPI-deflated income or any other variables. I attribute this unexplained fall in food's share (much larger for blacks than whites) to an unmeasured rise in income. In the case of whites, the unmeasured rise in real income is attributable to CPI bias. In the case of blacks, I believe that in addition to CPI bias there is a pattern of declining race-specific price premia from 1974–1991.
 
Between 1977 and 1997, US employment shifted dramatically in favor of industries that used skilled labor intensively. During this same period, some cities withered while others prospered. This paper examines employment growth in 39 industries across 316 cities to evaluate the importance of learning by doing, industry-specific location fundamentals, human capital externalities, and hiring cost explanations in these geographic shifts. Growth in industries that used skill intensively was particularly sensitive to the presence of local human capital. That growth was almost always negatively related to the initial size of the industry within the city implies a limited role for learning by doing and industry-specific location fundamentals stories.
 
Conventional theory predicts that transportation cost to a big-city central business district is an important determinant of housing prices. If this is true, the sudden rise in gasoline price following the Iranian revolution in 1979 could have caused a relative housing-price shift in central and peripheral neighborhoods. This paper looks for such an effect by fitting hedonic price functions in selected neighborhoods at varying distances from downtown Philadelphia, and testing for a relative shift at the time of the gasoline shortage. The results suggest that the energy shortage's effects may have been focused disproportionately on a few already revitalizing neighborhoods.
 
Housing policy under the Clinton and Bush Administrations has sought to boost homeownership while also narrowing racial gaps in owner-occupancy rates. Against that backdrop, homeownership rose sharply in the 1990s, but white-minority gaps remain in excess of 25 percentage points. We analyze these patterns using data from the 1983 to 2001 Survey of Consumer Finances. Results indicate that household characteristics explain most of the increase in homeownership and roughly two-thirds of the white-minority homeownership gap. Credit barriers account for no more than 5 percentage points of the remaining gap. This suggests that policy makers will need to look beyond innovations in mortgage finance if their goal is to further expand homeownership.
 
For 52 industry sectors and 42 services sectors, this paper tests how the local economic structure (local sectoral specialization and diversity, competition, average size of plants, and total employment density) affects the 1984–1993 employment growth of 341 local areas. These areas entirely and continuously cover the French territory. The impact of the local economic structure differs in industry and services. In industrial sectors, local total employment density, competition, and plant size always reduce local growth. Sectoral specialization and diversity have a negative impact on growth, but also increase the growth of a few sectors. Service sectors always exhibit negative specialization effects and positive diversity effects. Competition and plant size have a negative impact and density a positive one, but exceptions are observed for some sectors.
 
Previous homeowners face a nonlinear (kinked) budget constraint because they can avoid paying tax on the capital gain from the sale of their home if they purchase a more expensive home when they move. Simulation results suggest that the Tax Reform Act of 1986 (TRA86) has enhanced the importance of the capital gains kink by raising the after-tax cost of housing through lower marginal income tax rates while increasing the tax rate on capital gains. As a result, a reduction in the capital gains tax rate would reduce housing demand as some families currently at the kink would buy a less expensive home. Our findings also indicate that the level of excess burden increases with the capital gains tax rate, but that TRA86 reduced the size of implicit price subsidies received by owner-occupiers, and related deadweight loss, by roughly one-half. However, the distribution of benefits and deadweight loss from the favorable tax treatment of housing remains heavily weighted to higher income families. In addition, the size of the implicit housing subsidy and related distortion is sensitive to the level of mortgage rates.
 
Top-cited authors
Edward Glaeser
  • Harvard University
William Wheaton
  • Massachusetts Institute of Technology
Matthew E. Kahn
  • University of Southern California
Joseph Gyourko
  • University of Pennsylvania
Peter Linneman
  • University of Pennsylvania