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J. Schünemann, T. Trimborn:
"Boosting Taxes for Boasting about Houses: Status Concerns in the Housing Market";
Bericht für TU Wien, E 105-3 Working Paper Series - ISSN 2219-8849 (online); Berichts-Nr. 5, 2017; 31 S.

We extend a neoclassical model by a residential housing sector and Status concerns for housing. In the model, households derive utility from the absolute amount of housing and from comparing their stock of residential housing to a reference stock, which is composed of the current or past level of housing of their peers. We analyze how status concerns affect the households´ behavior and find that status
concerns increase housing demand and labor supply. Furthermore, we find that in the model the market allocation differs from the first-best allocation. Status concerns exert a negative external effect and elevate housing to inefficiently high levels. We derive a (state contingent) optimal tax that establishes the first-best allocation
along the transition path and at the steady state. Calibrating the model to the US we show that introducing the optimal tax entails a considerable welfare gain.

Status Concerns, Residential Housing, Optimal Taxation