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- Title
Inflation, the Stock Market. and Owner-Occupied Housing.
- Authors
Summers, Lawrence H.
- Abstract
The past decade has witnessed major revaluations of the principal forms of capital held in the economy of the U.S. The real market price of corporate capital as reflected in the stock market declined by 45 percent between 1965 and 1980. During the same period, the real price of owner-occupied housing increased by 34 percent. These capital gains and losses have had a substantial impact on the composition of wealth. This article suggests that to a large extent, the increases in the value of housing and decreases in the value of corporate capital may have a common explanation, the interaction of inflation and a nonindexed tax system. The acceleration of inflation has sharply increased the effective rate of taxation of corporate capital income, while reducing the effective taxation of owner-occupied housing. These changes have been capitalized in the form of changing asset prices. In the long run, they will lead to significant changes to the size and composition of the capital stock. inflation. A simple model showing how inflation and taxation interact to determine asset prices is presented.
- Subjects
UNITED States; CAPITAL; HOUSING; PRICE inflation &; taxation; MARKET prices; CAPITAL stock; FINANCE
- Publication
American Economic Review, 1981, Vol 71, Issue 2, p429
- ISSN
0002-8282
- Publication type
Article