Research

Wealth inequality has elicited calls for higher taxes on capital income and wealth, but also concerns that rich households would respond by concealing their assets offshore. We use a general equilibrium model to study how taxing capital more heavily would affect offshore tax evasion and how this would affect the broader economy. Without evasion, tax revenue could be increased dramatically, inequality could be reduced, and widespread welfare gains could be achieved. After accounting for evasion, however, tax revenue would rise marginally or even fall, inequality would increase, and widespread welfare losses would result.

Mortgage interest deductions and other homeownership subsidies are widely believed to be harmful because they redistribute resources from lower-income renters to higher-income homeowners. We argue that renters actually benefit from these policies in general equilibrium for two reasons. First, the rental supply curve is relatively inelastic, which means that rents fall when these policies reduce rental demand. Second, many renters spend most of their income on housing, and these renters gain substantially from rent decreases. We calibrate a quantitative model to match empirical evidence on these factors and show they are strong enough that subsidizing homeownership actually increases welfare.

How does housing - an important asset for many households - affect the design of optimal wealth taxes? I analyze the macroeconomic and distributional consequences of wealth taxation using a model with two forms of wealth: capital used by entrepreneurs to produce goods, and housing that provides shelter services. Without housing, taxing wealth instead of capital income would improve the capital allocation and raise welfare. With housing, taxing capital and housing equally would worsen the capital allocation and lower welfare. Instead, wealth should be taxed progressively, exempting most housing, resulting in a worse capital allocation but high welfare gains.

Should housing assistance be conditioned on sobriety? A dynamic general-equilibrium model evaluates Housing First (HF) and Treatment First (TF) as approaches to reducing drug addiction and homelessness. HF critics argue that conditioning housing on sobriety reduces both by decreasing moral hazard; supporters counter that such requirements exacerbate these issues as recovery is more difficult while homeless. The model links homelessness, addiction, mortality, and labor-market outcomes, endogenously generating drug use concentrated among low-income individuals. Holding policy generosity fixed, TF reduces addiction but increases homelessness. However, compared to a rationed HF benchmark, universal TF reduces both, raises welfare, and is nearly self-financing.

Most economists oppose rent control, arguing that it reduces welfare because it distorts rental markets. A quantitative general-equilibrium model calibrated to Toronto shows that, consistent with the Second Welfare Theorem, rent control is welfare-reducing when the government can efficiently redistribute landlord profits to low-income renters via lump-sum taxes and transfers. However, when fiscal redistribution is imperfect to empirically-realistic degrees, common types of rent control improve long-run welfare by serving as a second-best redistributive instrument. In this setting, the equity gains from transferring surplus from landlords to low-income renters outweigh the distortions caused by rent control commonly highlighted by the literature.