Homeownership, Mobility, And Local Income Redistribution

Abstract

AbstractRegions are characterized by different homeownership rates. Homeowners and renters differ in their mobility costs, renters having lower mobility costs. This paper analyses how the presence of those different types of households affects income sorting and tax differences between local jurisdictions. To this aim, we analyze a model of local income redistribution with mobile (renter) and immobile (homeowner) households. Linear income taxes finance a lump sum transfer. Policies are determined endogenously through voting. In such a framework, if there are no or only few homeowners, no income‐sorting equilibrium exists. Above a certain threshold for the homeownership rate we find an inverted U‐shaped relationship between tax differences and homeownership rates, such that tax differences between jurisdictions are highest for intermediate homeownership rates.