INTRODUCING RISKY HOUSING AND ENDOGENOUS TENURE CHOICE INTO A PORTFOLIO-BASED GENERAL EQUILIBRIUM-MODEL

Portfolio-based general equilibrium models are useful for analyzing the interaction between the structure of individual tax rates and the way particular assets are taxed, for considering the role of differential tax rules and risk in determining household portfolio choices, and for addressing distributional questions. Unfortunately, current versions of these models give housing short shrift, owner housing is assumed to be riskless, rental housing is not a separately identifiable asset, and tenure choice is of necessity exogenously determined. This paper extends one of these models to incorporate a full housing subsector and uses the model to analyze the impact of the U.S. 1986 Tax Reform Act.