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Tax incentives and housing decisions: Effects of the Tax Cut and Jobs Act

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  • Hembre, Erik
  • Dantas, Raissa

Abstract

We investigate the 2017 Tax Cut and Jobs Act (TCJA) that altered the US tax code, greatly reducing itemization rates and effective homeownership subsidies. Using American Community Survey data and the NBER TAXSIM program, we estimate that the TCJA caused the average effective homeownership subsidy to decline 61% from $2,272 to $885. To uncover the TCJA's effects on homeownership and mortgage decisions, we use a simulated policy instrument that exploits state tax policy and housing market differentials. Comparing households that are similar in observable characteristics but vary in state exposure to the TCJA, we find that each percentage point decline in the effective homeownership subsidy rate lowered homeownership rates by 0.57 percentage point and mortgage use by 0.70 percentage point after the TCJA was enacted.

Suggested Citation

  • Hembre, Erik & Dantas, Raissa, 2022. "Tax incentives and housing decisions: Effects of the Tax Cut and Jobs Act," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:regeco:v:95:y:2022:i:c:s0166046222000400
    DOI: 10.1016/j.regsciurbeco.2022.103800
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    1. Ivan Jeliazkov & Shubham Karnawat & Mohammad Arshad Rahman & Angela Vossmeyer, 2023. "Flexible Bayesian Quantile Analysis of Residential Rental Rates," Papers 2305.13687, arXiv.org, revised Sep 2023.

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    More about this item

    Keywords

    Homeownership; Mortgage interest deduction; Housing finance;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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