IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Mortgage Interest Deduction and its Impact on Homeownership Decisions

  • Christian A. L. Hilber
  • Tracy M. Turner

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 across states, over time and due to inter-state moves. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID only boosts homeownership attainment of higher income households in less tightly regulated housing markets. In more restrictive places - typically larger coastal cities - an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.spatialeconomics.ac.uk/textonly/SERC/publications/download/sercdp0055.pdf
Download Restriction: no

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0055.

as
in new window

Length:
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:cep:sercdp:0055
Contact details of provider: Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Feldstein, Martin S & Metcalf, Gilbert E, 1987. "The Effect of Federal Tax Deductibility on State and Local Taxes and Spending," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 710-36, August.
  2. Christian A. L. Hilber & Christopher J. Mayer, 2002. "Why do households without children support local public schools? linking house price capitalization to school spending," Working Papers 02-10, Federal Reserve Bank of Philadelphia.
  3. Edward L. Glaeser & Jesse M. Shapiro, 2002. "The Benefits of the Home Mortgage Interest Deduction," NBER Working Papers 9284, National Bureau of Economic Research, Inc.
  4. Christian A. L. Hilber & Wouter Vermeulen, 2012. "The Impact of Supply Constraints on House Prices in England," SERC Discussion Papers 0119, Spatial Economics Research Centre, LSE.
  5. James Berkovec & Don Fullerton, 1990. "A General Equilibrium Model of Housing, Taxes, and Portfolio Choice," NBER Working Papers 3505, National Bureau of Economic Research, Inc.
  6. Fischel, William A., 2001. "Homevoters, Municipal Corporate Governance, and the Benefit View of the Property Tax," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 157-74, March.
  7. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
  8. Shan, Hui, 2011. "The effect of capital gains taxation on home sales: Evidence from the Taxpayer Relief Act of 1997," Journal of Public Economics, Elsevier, vol. 95(1), pages 177-188.
  9. DiPasquale, Denise & Glaeser, Edward L., 1999. "Incentives and Social Capital: Are Homeowners Better Citizens?," Journal of Urban Economics, Elsevier, vol. 45(2), pages 354-384, March.
  10. Karl E. Case & Christopher J. Mayer, 1995. "Housing Price Dynamics Within a Metropolitan Area," NBER Working Papers 5182, National Bureau of Economic Research, Inc.
  11. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2012. "Can Cheap Credit Explain the Housing Boom?," NBER Chapters, in: Housing and the Financial Crisis, pages 301-359 National Bureau of Economic Research, Inc.
  12. Gilbert E. Metcalf, 2008. "Assessing the Federal Deduction for State and Local Tax Payments," NBER Working Papers 14023, National Bureau of Economic Research, Inc.
  13. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
  14. Christian A. L. Hilber, 2010. "New Housing Supply and the Dilution of Social Capital," SERC Discussion Papers 0042, Spatial Economics Research Centre, LSE.
  15. Christian A. L. Hilber, . "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.
  16. James Poterba & Todd Sinai, 2008. "Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income," American Economic Review, American Economic Association, vol. 98(2), pages 84-89, May.
  17. Feenberg, Daniel R & Rosen, Harvey S, 1986. "The Interaction of State and Federal Tax Systems: The Impact of State and Local Tax Deductibility," American Economic Review, American Economic Association, vol. 76(2), pages 126-31, May.
  18. David M. Cutler & Jonathan Gruber, 1996. "Does Public Insurance Crowd out Private Insurance?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 391-430.
  19. Green, Richard K. & Vandell, Kerry D., 1999. "Giving households credit: How changes in the U.S. tax code could promote homeownership," Regional Science and Urban Economics, Elsevier, vol. 29(4), pages 419-444, July.
  20. Chang-Tai Hsieh & Enrico Moretti, 2003. "Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1076-1122, October.
  21. Tracy M. Turner, 2003. "Does Investment Risk Affect the Housing Decisions of Families?," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 675-691, October.
  22. Dynarski, Mark R & Sheffrin, Steven M, 1985. "Housing Purchases and Transitory Income: A Study with Panel Data," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 195-204, May.
  23. Todd Sinai & Joseph Gyourko, 2004. "The (Un)changing Geographical Distribution of Housing Tax Benefits: 1980 to 2000," NBER Working Papers 10322, National Bureau of Economic Research, Inc.
  24. Christopher Mayer, 2011. "Housing Bubbles: A Survey," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 559-577, 09.
  25. Quigley, John M. & Raphael, Steven, 2006. "Regulation and the High Cost of Housing in California," Berkeley Program on Housing and Urban Policy, Working Paper Series qt3hh7s35m, Berkeley Program on Housing and Urban Policy.
  26. Tracy M. Turner & Marc T. Smith, 2009. "Exits From Homeownership: The Effects Of Race, Ethnicity, And Income," Journal of Regional Science, Wiley Blackwell, vol. 49(1), pages 1-32.
  27. Karla Hoff & Arijit Sen, 2005. "Homeownership, Community Interactions, and Segregation," American Economic Review, American Economic Association, vol. 95(4), pages 1167-1189, September.
  28. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
  29. Martin Gervais & Manish Pandey, 2005. "Who Cares about Mortgage Interest Deductibility?," University of Western Ontario, Economic Policy Research Institute Working Papers 20059, University of Western Ontario, Economic Policy Research Institute.
  30. Christian A. L. Hilber & Christopher J. Mayer, 2004. "Why Do Households Without Children Support Local Public Schools?," NBER Working Papers 10804, National Bureau of Economic Research, Inc.
  31. Dietz, Robert D. & Haurin, Donald R., 2003. "The social and private micro-level consequences of homeownership," Journal of Urban Economics, Elsevier, vol. 54(3), pages 401-450, November.
  32. Saks, Raven E., 2008. "Job creation and housing construction: Constraints on metropolitan area employment growth," Journal of Urban Economics, Elsevier, vol. 64(1), pages 178-195, July.
  33. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Economic Logic blog

When requesting a correction, please mention this item's handle: RePEc:cep:sercdp:0055. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.