Tax reform and housing demand: The distribution of welfare gains and losses

We study distributional effects of a recent reform of the Swedish system of income taxation which affects the price of owner-occupied housing. In calculating the welfare effects we account both for the non-linearities of the income tax schedule and the dichotomous-choice aspect of housing demand (to own or to rent). Small and Rosen (1981) have shown how the standard Harberger-type approximation formulae can be adapted to handle discrete choices and we modify their analysis for a non-linear budget constraint.