VAT: Another Reason for a Housing Boom?

November 26, 2010 Casey B. Mulligan

The U.S. does not have a national sales tax, or a value-added tax (VAT). Many other countries do have VAT, and a number of economists and accountants (not me!) have recommended that the U.S. get a VAT.

Suppose that we knew that, say, a 10% VAT was coming to the U.S. in the year 2015. In principle, a consumption tax is levied on all forms of consumption, including housing consumption. However, in practice a VAT only taxes new housing — that is, a sales tax is collected when a new home is sold, and no sales tax is collected on home resales or home rents (actual or imputed).

Thus, homes built before 2015 would be 10% more valuable that home built after 2015, because only the latter would pay tax. So anticipation of VAT would cause a temporary boom in housing construction and new housing prices.

Was something like this important during the housing boom of the 2000s?

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About Casey B. Mulligan 76 Articles

Affiliation: University of Chicago

Casey B. Mulligan is a Professor in the Department of Economics. Mulligan first joined the University of Chicago in 1991 as a graduate student, and received his Ph.D. in Economics from the University of Chicago in 1993.

He has also served as a Visiting Professor teaching public economics at Harvard University, Clemson University, and Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

Mulligan is author of the 1997 book Parental Priorities and Economic Inequality, which studies economic models of, and statistical evidence on, the intergenerational transmission of economic status. His recent research is concerned with capital and labor taxation, with particular emphasis on tax incidence and positive theories of public policy. His recent work includes Market Responses to the Panic of 2008 (a book-in-process with Chicago graduate student Luke Threinen) and published articles such as “Selection, Investment, and Women’s Relative Wages,” “Deadweight Costs and the Size of Government,” “Do Democracies have Different Public Policies than Nondemocracies?,” “The Extent of the Market and the Supply of Regulation,” “What do Aggregate Consumption Euler Equations Say about the Capital Income Tax Burden?,” and “Public Policies as Specification Errors.” Mulligan has reported on some of these results in the Chicago Tribune, the Chicago Sun-Times, the Wall Street Journal, and the New York Times.

He is affiliated with a number of professional organizations, including the National Bureau of Economic Research, the George J. Stigler Center for the Study of the Economy and the State, and the Population Research Center. He is also the recipient of numerous awards and fellowships, including those from the National Science Foundation, the Alfred P. Sloan Foundation, the Smith- Richardson Foundation, and the John M. Olin Foundation.

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VAT: Another Reason for a Housing Boom?

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