Inflation, Capital Taxation, and Housing: The Long Run in a Small Open Economy

This paper deals with the consequences of inflation and capital income taxes for the accumulation of wealth in a small open economy with a housing sector. Particular attention is paid to the incentive and intergenerational redistribution effects stemming from the interaction of inflation and capital income taxation and to portfolio shifts between housing assets and other assets. The authors find that the intergenerational distribution effects and the incentive effects on overall savings tend to offset and sometimes even to dominate several of the expected interasset substitution effects of a change in inflation and capital taxes.