To explain briefly: What is your paper about?
Stefan Grob: If you live in the house you own, you are obliged to declare a hypothetical rental income as part of your income. This hypothetical rental income depends on the amount that a third party would pay in rent under the same circumstances. In return, debt interest and maintenance costs for an owner-occupied residential property can be deducted from their taxable income. On a political level, the abolition of this system is being discussed. We examined the consequences of such a change in the system.
And what did the results show?
Stefan Grob: If interest rates remain low, the average homeowner would benefit from a change in the system. In relative terms, tenants would be among the losers if the system were to change. Likewise, the banks would also be among the losers, as mortgage debt would probably be amortized gradually. At an interest rate level of 1.5 percent, the state would lose tax revenues of around CHF 4.7 billion following a change in the system. Our study therefore has relevant political implications.
How did you approach the issue methodically?
Stefan Grob: We analysed the current legislation and the reform proposal in detail and conducted a detailed literature research. We then developed a model based on the tax accounts of the City of Lucerne that allowed us to evaluate the tax effects of abolishing the current system. In the model, all the variables can be changed, and projections can be made based on average values.
How did you come up with this topic?
Stefan Grob: The topic was issued in the topic pool for the course work in the 9 ECTS Module 11 "Applied Research Projects". Fortunately, we were allocated the topic and were able to write the paper under the supervision of Prof. Dr. Yvonne Seiler-Zimmermann.
How did the article end up being published in "Die Volkswirtschaft"?
Stefan Grob: After submitting the paper, our supervisor suggested writing an article about our research in "Die Volkswirtschaft" due to the political relevance of the topic. We contacted the journal. Since the editors were planning a dossier on this topic, we were also lucky with the timing.