Means-Tested Age Pension and Homeownership: Is There a Link?

No 2011-02, Discussion Papers from School of Economics, The University of New South Wales

Abstract: Several targeted welfare programs across the world have made owner-occupied housing exempt from the means test, such as the Supplementary Social Income (SSI) in the US and the age pension scheme in Australia. Relatively little is known about the impact of such exemption on household portfolio choice. We study the case of the Australian age pension scheme, and argue that current uncapped exemption may lead to distortionary incentives for very high levels of housing wealth to be sheltered from the means test. We set up a quantitative lifecycle framework, with business and housing investment, borrowing constraints, and wealth inequality, that is able to match a number of key features in the Australian economy. We find that abolishing the current exemption of owner-occupied housing in the assets test increases aggregate output, capital accumulation, and welfare, while lowering housing investment and homeownership. However, removing such distortions, however, does not necessarily imply that all households would be better off. The lowering of other taxes to maintain fiscal balance would result in households at the top of the wealth distribution experiencing a large welfare loss, however the majority of the population would benefit.

Keywords: means-tested age pension; homeownership; lifecycle model; portfolio choice (search for similar items in EconPapers)
JEL-codes: D31 E21 E62 H3 H55 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2011-01
New Economics Papers: this item is included in nep-age, nep-dge and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: MEANS-TESTED AGE PENSIONS AND HOMEOWNERSHIP: IS THERE A LINK? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:swe:wpaper:2011-02

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