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The Fiscal and Distributional Effects of Removing Mortgage Interest Tax Relief in EU Member States

Author

Listed:
  • Alexander Leodolter
  • Aleksander Rutkowski

Abstract

Mortgage interest tax relief contributes to the favourable tax treatment of owner-occupied housing com-pared to other investments. It thereby creates market distortions and may at the same time often not give rise to its intended effect, namely to increase homeownership. EU country-specific recommendations have asked for a reduction of the relief in Member States, also in view of risks to macroeconomic stability. The paper analyses the effects of removing mortgage interest tax relief on public revenue and expenditure, household disposable income and income inequality in 14 EU Member States with the microsimulation model EUROMOD. It finds that the tax relief largely benefits households at medium to high income levels. Consequently, its removal could help decrease income inequality in almost all Member States.

Suggested Citation

  • Alexander Leodolter & Aleksander Rutkowski, 2022. "The Fiscal and Distributional Effects of Removing Mortgage Interest Tax Relief in EU Member States," European Economy - Economic Briefs 072, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecobri:072
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    File URL: https://economy-finance.ec.europa.eu/publications/fiscal-and-distributional-effects-removing-mortgage-interest-tax-relief-eu-member-states_en
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    Keywords

    The Fiscal and Distributional Effects of Removing Mortgage Interest Tax Relief in EU Member States; Leodolter; Rutkowski; mortgage interest tax relief; mortgage interest tax deductibility; immovable property; housing; taxation; owner-occupied housing; homeownership tax bias; EUROMOD; simulation; inequality.;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D3 - Microeconomics - - Distribution
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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