FISCAL-POLICY AND THE MARKET FOR OWNER-OCCUPIED DWELLINGS - THEORY VSEMPIRICAL-DATA

The tax reform proposals from the Danish Tax Reform Committee have spa rked off a debate on the effects of changes in the capital income tax rate on the price of owner-occupied dwellings. This paper develops a g eneral model of price formation in the market for owner-occupied housi ng and tests the model against empirical data for Denmark. The model p redicts that the tax reform proposals of the Tax Reform Committee will have only modest effects on housing prices, contrary to the predictio ns of a simplified user-cost model which turns out to have no empirica l basis at all.