Financial Restrictions, Personal Income Tax (PIT) and Demand for a Permanent Home in a Dynamic Model. An analysis with Panel Data for Spain

Abstract

This paper analyzes the way in which income tax and liquidity determine the purchase or rental of a permanent home in Spain. To do this, we have developed a theoretical dynamic model based on Euler’s equation. This model is verified using a sample from the 1991-1995 Panel of income taxpayers. Results suggest that the degree of financial restriction is the most relevant variable when determining the possibility of purchasing a home, while tax incentives increase their relative weighting once this asset has been acquired. Incentives for renting a home are relatively insignificant particularly for taxpayers who habitually rent their homes.personal income tax, liquidity, permanent home, tax incentives