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The Mortgage Interest Deduction and its Impact on Homeownership Decisions

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Listed:
  • Christian A. L. Hilber

    (London School of Economics)

  • Tracy M. Turner

    (Kansas State University)

Abstract

This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy arising from changes in the MID within and across states over time. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID boosts homeownership attainment only of higher-income households in less tightly regulated housing markets. In more restrictive places, an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Christian A. L. Hilber & Tracy M. Turner, 2014. "The Mortgage Interest Deduction and its Impact on Homeownership Decisions," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 618-637, October.
  • Handle: RePEc:tpr:restat:v:96:y:2014:i:4:p:618-637
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    More about this item

    Keywords

    mortgage interest deduction; homeownership; MID; housing market; social welfare;

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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