The Hidden Homeownership Welfare State: An International Long-Term Perspective on the Tax Treatment of Homeowners

Linus Pfeiffer,Konstantin A. Kholodilin,Artem Korzhenevych,Sebastian Kohl

doi:10.2139/ssrn.3924791

Abstract

Welfare is traditionally understood through social security decommodifying labor markets or social investment policies. In the domain of housing, however, welfare for homeowners is largely hidden in the tax codes’ fiscal exemptions. Based on a content analysis of legislation, this paper introduces a novel yearly database of 37 countries between 1910 and 2020 to uncover the “hidden welfare state” of taxes on imputed rent, deductibility of mortgage payments, housing capital gains tax and VAT on newly built dwellings. Summary indices of homeownership attractiveness and neutrality of the tax code show that fiscal homeownership policies have been in decline until the 1980s and risen ever since. They are in place where finance is liberally and labor restrictively regulated. Contrary to the classical welfare state, they are not associated with an economic logic of industrialism or left-wing governments, but a rent-regulation alternative of Common-Law jurisdictions and smaller countries. As welfare for property owners, the logic of fiscal homeownership welfare diverges from the classical welfare for the laboring classes.

Highlights

The welfare state is seen as the very visible complex of social security programs which provide income support in case of old age, accident, unemployment, maternity and sickness
The welfare state has mostly been described through the lens of the visible social-security system with its focus on labor and income-maintenance
Welfare states have created their constituencies and a paper industry of scholarly work devoted to understanding their rise and variations over time and countries

Summary

Introduction

The welfare state is seen as the very visible complex of social security programs which provide income support in case of old age, accident, unemployment, maternity and sickness. Broader conceptions of welfare have been suggested: in times of traditional welfare retrenchment, “social policies by other means” have come to play a more important role (Seelkopf and Starke, 2019) One such central policy instrument are fiscal exemptions, as when states willingly forgo tax income under certain conditions to subsidize economic activities. Whereas direct welfare regulations have been extensively measured and explained across countries in terms of the logic of industrialism, power resources or polity effects, the cross-country measurement or let alone theorizing on the hidden housing welfare state is virtually non-existent within comparative political economy This study fills this gap by presenting a unique and novel regulation database which traces four major fiscal exemptions for homeowners over a century, starting in 1914, when first modern tax codes came into being and currently covering a total of 37 OECD and non-OECD countries.

Explaining homeowner supporting policies

Tax treatment of the owner-occupied housing

Quantification of taxation attractiveness and tenure neutrality

Results: descriptive and explanatory assessment of homeownership welfare

Discussion and conclusion

Findings

Literature