Imputed Rent and Income Inequality: A Decomposition Analysis for Great Britain, West Germany and the U.S.

Abstract

This article deals with income advantages derived from owner‐occupied housing and their impact on the personal income distribution. Using micro‐data from the British Household Panel Study (BHPS), the German Socio‐Economic Panel (SOEP), and the U.S. Panel Study of Income Dynamics (PSID) we find distinct cross‐national differences in terms of the prevalence and extent of imputed rent. Results from inequality decomposition analyses show this overall impact to be the net effect of two conflicting changes: On the one hand there is increasing income inequality between the groups of owneroccupiers and renters, respectively, and, on the other hand, we find inequality to be decreasing within the group of those owner‐occupiers who own outright. When focussing on imputed rent as a means of old‐age provision, our results for all three countries show an income advantage for, as well as a poverty reducing effect among the elderly. The empirical findings support the claim for the need of an improved harmonization of this non‐cash income component especially for the purpose of cross‐national comparative research.

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