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The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans

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  • Andrew Hanson

Abstract

This article examines the incidence of the largest housing-related subsidy in the federal budget, the home mortgage interest deduction (MID). The author uses the difference in interest rates for loans made around the MID limit to identify the incidence of the subsidy. Using data on individual mortgages originated in 2004, the author estimates that for every $1,000 borrowed without the MID, the interest rate on the entire loan decreases by between 3.3 and 4.4 percent. Results suggest that lenders capture between 9 and 17 percent of the subsidy created by the home MID through higher mortgage interest rates.

Suggested Citation

  • Andrew Hanson, 2012. "The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans," Public Finance Review, , vol. 40(3), pages 339-359, May.
    • Handle: RePEc:sae:pubfin:v:40:y:2012:i:3:p:339-359
    DOI: 10.1177/1091142111422432
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Why the mortgage interest tax deduction should disappear, but won't
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-06-08 17:24:14

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    Cited by:

    1. Wodon, Quentin, 2014. "Comparing Itemized Tax Deductions across States: A Simple Decomposition Applied to Mortgage Interest Deductions," MPRA Paper 56940, University Library of Munich, Germany.
    2. Ganong, Peter & Jäger, Simon, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," IZA Discussion Papers 8282, IZA Network @ LISER.
    3. Jaeger, Simon C & Ganong, Peter Nathan, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," Scholarly Articles 34222894, Harvard University Department of Economics.
    4. Hanson, Andrew, 2020. "Taxes and Borrower Behavior: Evidence from the Mortgage Interest Deductibility Limit," Journal of Urban Economics, Elsevier, vol. 118(C).
    5. Annelies Hoebeeck & Koen Inghelbrecht, 2017. "The impact of the mortgage interest and capital deduction scheme on the Belgian mortgage market," Working Paper Research 327, National Bank of Belgium.
    6. Maxence Valentin, 2024. "Subsidizing housing with deductions," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1490-1515, September.
    7. Martin, Hal & Hanson, Andrew, 2016. "Metropolitan area home prices and the mortgage interest deduction: Estimates and simulations from policy change," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 12-23.

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