Research

Is it optimal to introduce progressivity in housing taxation? We explore this question by constructing a heterogeneous-agent model featuring housing and entrepreneurship, calibrated to the Spanish economy. Our results indicate that a progressive housing tax can significantly enhance aggregate welfare and influence the economy through multiple channels. By imposing higher taxes on high-value properties, the policy curbs housing demand and lowers house prices—particularly benefiting lower-income and younger households. Moreover, it encourages rich households to reallocate savings from housing toward productive capital, thereby stimulating investment, output, and wages. In an economy with entrepreneurs, the optimal tax design combines a flat income tax with a highly progressive housing tax, as elevated income tax rates at the top discourage business expansion. The equilibrium price effects and resulting welfare gains from this policy are amplified when housing supply is more inelastic

Between 1999 and 2007, Spain experienced a pronounced housing boom, with real house prices doubling over the period. The bubble burst in 2007, triggering a five-year recession during which the median income of working-age households fell by 30% below its pre-crisis trend. Concurrently, the wealth-age distribution shifted significantly in favor of older and middle-aged cohorts. To analyze the heterogeneous effects of the housing cycle and recession-induced income losses on household wealth and welfare across cohorts, I develop a quantitative overlapping-generations model with heterogeneous agents, portfolio choice between housing and financial assets, and house price uncertainty. The model shows that the aggregate shocks of the period generated substantial welfare disparities: younger households experienced losses of up to 30% in consumption-equivalent terms, while older cohorts gained by as much as 20\%. These shocks explain roughly one-third of the observed rise in intergenerational wealth inequality between 2002 and 2020.