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The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans

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  • Andrew Hanson

    ()
    (Department of Economics, Georgia State University, Atlanta, GA, USA)

Abstract

This article examines the incidence of the largest housing-related subsidy in the federal budget, the home mortgage interest deduction (MID). The author uses the difference in interest rates for loans made around the MID limit to identify the incidence of the subsidy. Using data on individual mortgages originated in 2004, the author estimates that for every $1,000 borrowed without the MID, the interest rate on the entire loan decreases by between 3.3 and 4.4 percent. Results suggest that lenders capture between 9 and 17 percent of the subsidy created by the home MID through higher mortgage interest rates.

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File URL: http://pfr.sagepub.com/content/40/3/339.abstract
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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 40 (2012)
Issue (Month): 3 (May)
Pages: 339-359

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Handle: RePEc:sae:pubfin:v:40:y:2012:i:3:p:339-359

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Keywords: housing subsidy; mortgage interest deduction; incidence;

References

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  1. Rosen, Harvey S., 1979. "Owner occupied housing and the federal income tax: Estimates and simulations," Journal of Urban Economics, Elsevier, vol. 6(2), pages 247-266, April.
  2. Gibbons, Stephen & Manning, Alan, 2006. "The incidence of UK housing benefit: Evidence from the 1990s reforms," Journal of Public Economics, Elsevier, vol. 90(4-5), pages 799-822, May.
  3. Anderson, John E. & Clemens, Jeffrey & Hanson, Andrew, 2007. "Capping the Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 60(4), pages 769-85, December.
  4. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Susin, Scott, 2002. "Rent vouchers and the price of low-income housing," Journal of Public Economics, Elsevier, vol. 83(1), pages 109-152, January.
  6. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-42, May.
  7. Devereux, Michael P. & Lanot, Gauthier, 2003. "Measuring tax incidence: an application to mortgage provision in the UK," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1747-1778, August.
  8. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December.
  9. Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
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Cited by:
  1. Ganong, Peter & J├Ąger, Simon, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," IZA Discussion Papers 8282, Institute for the Study of Labor (IZA).
  2. Wodon, Quentin, 2014. "Comparing Itemized Tax Deductions across States: A Simple Decomposition Applied to Mortgage Interest Deductions," MPRA Paper 56940, University Library of Munich, Germany.

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