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The mortgage interest deduction and its impact on homeownership decisions

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  • Christian A. L. Hilber
  • Tracy M. Turner

Abstract

This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy arising from changes in the MID within and across states over time. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID boosts homeownership attainment only of higher income households in less tightly regulated housing markets. In more restrictive places an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.

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File URL: http://eprints.lse.ac.uk/49843/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 49843.

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Date of creation: 10 Apr 2013
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Publication status: Published in The Review of Economics and Statistics, 10, April, 2013. ISSN: 0034-6535
Handle: RePEc:ehl:lserod:49843

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Keywords: homeownership; mortgage interest deduction; tax subsidies; land use regulation;

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References

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  1. Gilbert E. Metcalf, 2008. "Assessing the Federal Deduction for State and Local Tax Payments," NBER Working Papers 14023, National Bureau of Economic Research, Inc.
  2. Christian A. L. Hilber, 2010. "New Housing Supply and the Dilution of Social Capital," SERC Discussion Papers 0042, Spatial Economics Research Centre, LSE.
  3. James Poterba & Todd Sinai, 2008. "Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income," American Economic Review, American Economic Association, vol. 98(2), pages 84-89, May.
  4. Hilber, Christian A.L. & Mayer, Christopher, 2009. "Why do households without children support local public schools? Linking house price capitalization to school spending," Journal of Urban Economics, Elsevier, vol. 65(1), pages 74-90, January.
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  16. Hui Shan, 2008. "The effect of capital gains taxation on home sales: evidence from the Taxpayer Relief Act of 1997," Finance and Economics Discussion Series 2008-53, Board of Governors of the Federal Reserve System (U.S.).
  17. Christian A. L. Hilber & Wouter Vermeulen, 2012. "The Impact of Supply Constraints on House Prices in England," SERC Discussion Papers 0119, Spatial Economics Research Centre, LSE.
  18. Dynarski, Mark R & Sheffrin, Steven M, 1985. "Housing Purchases and Transitory Income: A Study with Panel Data," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 195-204, May.
  19. Edward L. Glaeser & Jesse M. Shapiro, 2002. "The Benefits of the Home Mortgage Interest Deduction," NBER Working Papers 9284, National Bureau of Economic Research, Inc.
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  29. Tracy M. Turner & Marc T. Smith, 2009. "Exits From Homeownership: The Effects Of Race, Ethnicity, And Income," Journal of Regional Science, Wiley Blackwell, vol. 49(1), pages 1-32.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How not to encourage home ownership
    by Economic Logician in Economic Logic on 2010-12-28 17:05:00
  2. How to cut the charitable deduction without hurting charities
    by Dylan Matthews in Ezra Klein's Wonkblog on 2012-11-15 16:50:46
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Cole, Adam J. & Gee, Geoffrey & Turner, Nicholas, 2011. "The Distributional And Revenue Consequences Of Reforming The Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 64(4), pages 977-1000, December.
  2. Bracke, Philippe & Hilber, Christian & Silva, Olmo, 2013. "Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt," IZA Discussion Papers 7417, Institute for the Study of Labor (IZA).

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