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The Mortgage Interest Deduction and its Impact on Homeownership Decisions

Listed author(s):
  • Christian A. L. Hilber

    (London School of Economics)

  • Tracy M. Turner

    (Kansas State University)

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

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00427
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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 96 (2014)
Issue (Month): 4 (October)
Pages: 618-637

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Handle: RePEc:tpr:restat:v:96:y:2014:i:4:p:618-637
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  1. Christian A. L. Hilber, "undated". "Neighborhood Externality Risk and The Home Ownership Status of Properties," Zell/Lurie Center Working Papers 387, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
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  13. Christian A. L. Hilber, 2007. "New housing supply and the dilution of social capital," LSE Research Online Documents on Economics 3573, London School of Economics and Political Science, LSE Library.
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