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The Benefits of the Home Mortgage Interest Deduction

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  • Edward L. Glaeser
  • Jesse M. Shapiro

Abstract

The home mortgage interest deduction creates incentives to buy more housing and to become a homeowner, and the case for the deduction rests on social benefits from housing consumption and homeownership. There is little evidence suggesting large externalities from the level of housing consumption, but there appear to be externalities from homeownership. Externalities from living around homeowners are far too small to justify the deduction. Externalities from homeownership are larger, but the home mortgage interest deduction is a particularly poor instrument for encouraging homeownership since it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time series which shows that the ownership subsidy moves with inflation and has changed significantly between 1960 and today, but the homeownership rate has been essentially constant.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9284.

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Date of creation: Oct 2002
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Publication status: published as Edward L. Glaeser, Jesse M. Shapiro. "The Benefits of the Home Mortgage Interest Deduction," in James M. Poterba, editor, "Tax Policy and the Economy, Volume 17" MIT Press (2003)
Handle: RePEc:nbr:nberwo:9284

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  1. 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.
  2. Edward L. Glaeser & Joseph Gyourko, . "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  3. Glaeser, Edward L. & Sacerdote, Bruce, 2000. "The Social Consequences of Housing," Journal of Housing Economics, Elsevier, vol. 9(1-2), pages 1-23, March.
  4. Richard Voith & Joseph Gyourko, . "Capitalization of Federal Taxes, the Relative Price of Housing, and Urban Form: Density and Sorting Effects," Zell/Lurie Center Working Papers 366, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  5. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," Harvard Institute of Economic Research Working Papers 1931, Harvard - Institute of Economic Research.
  6. Harvey S. Rosen, 1985. "Housing Behavior and the Experimental Housing Allowance Program: What Have We Learned?," NBER Working Papers 0657, National Bureau of Economic Research, Inc.
  7. Poterba, James M, 1992. "Taxation and Housing: Old Questions, New Answers," American Economic Review, American Economic Association, vol. 82(2), pages 237-42, May.
  8. Denise DiPasquale & Edward L. Glaeser, 1998. "Incentives and Social Capital: Are Homeowners Better Citizens?," NBER Working Papers 6363, National Bureau of Economic Research, Inc.
  9. Edwin S. Mills, 1987. "Dividing up the investment pie: have we overinvested in housing?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 13-23.
  10. Rosen, Harvey S & Rosen, Kenneth T, 1980. "Federal Taxes and Homeownership: Evidence from Time Series," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 59-75, February.
  11. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  12. Richard K. Green & Michelle J. White, 1994. "Measuring the Benefits of Homeowning: Effects on Children," Wisconsin-Madison CULER working papers 94-05, University of Wisconsin Center for Urban Land Economic Research.
  13. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  14. Kanemoto, Yoshitsugu, 1990. "Contract types in the property market," Regional Science and Urban Economics, Elsevier, vol. 20(1), pages 5-22, June.
  15. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
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  1. Simpson-Bowles: Should the mortgage interest deduction be eliminated?
    by Adam Ozimek in Modeled Behavior on 2010-11-11 13:16:28
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