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Implications of Fiscal Policy for Housing Tenure Decisions

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  • Anastasia Girshina

    (Department of Economics, University Of Venice CÃ Foscari)

Abstract

Many of the world's wealthy countries provide fiscal incentives to homeowners. Yet, the impact of such tax breaks on housing tenure decision is unclear. Using difference-in-differences approach, this study estimates the effect of mortgage interest deduction on homeownership in the United States. The identification relies on the large changes in income tax rates and standard deduction. The largest of these changes increased income tax rate by as much as 23,9% and decreased standard deduction by 7,2% between 2002 and 2004. The baseline estimates suggest that increase in income tax rate in a state that allows mortgage interest deduction is associated to 3 percentage points increase in homeownership relative to states that didn't change their fiscal policy and to 5 percentage points -relative to states that do not allow mortgage interest deduction but had a comparable increase in tax rates. The results are robust to a range of alternative specifications.

Suggested Citation

  • Anastasia Girshina, 2016. "Implications of Fiscal Policy for Housing Tenure Decisions," Working Papers 2014:, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2016:11
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    References listed on IDEAS

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    More about this item

    Keywords

    fiscal policy; tenure choice; mortgage interest deduction; income tax; homeownership;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • 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
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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