Abstract
Standard economic models assume homeowners are willing and able to borrow against their housing wealth. I use high-frequency administrative data and quasi-experimental variation in property taxes to show that because homeowners do not borrow, property taxes exacerbate consumption volatility and financial distress. This behavior occurs even among homeowners with access to credit, ruling out standard credit-supply constraints. Instead, a new household survey indicates that preference-based debt aversion deters borrowing. Additional efficiency costs arise because property taxes increase foreclosures and decrease home investment, which imply negative externalities as well as distortions to the tax base. Property taxes also displace homeowners to lower-quality neighborhoods. Together, these findings reveal the existence of important and previously-unmodeled welfare costs.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.