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The Housing Ladder, Taxation, and Borrowing constraints

  • J. Swank
  • J. Kakes
  • A.F. Tieman

Using a multi-tier model of the housing market, we show that both starters and movers benefit from mortgage interest deduction for higher income groups. However, such tax favouring also tends to facilitate house price explosions, especially when interest rates are low and LTV-ratios are high. More in general, the efficiency of implicit tax subsidies to homeowners depends critically on the price responsiveness of new construction, which is found to differ strongly from country to country. Irrespective of supply conditions, lending institutions are likely to lose by policies aimed at limiting the deductibility of mortgage interest payments. JEL Classification: G12; G21; H20; R31

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Paper provided by Netherlands Central Bank, Research Department in its series WO Research Memoranda (discontinued) with number 688.

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Date of creation: 2002
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Handle: RePEc:dnb:wormem:688
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  1. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
  2. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
  3. François Ortalo-Magné & Sven Rady, 2002. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," Wisconsin-Madison CULER working papers 02-01, University of Wisconsin Center for Urban Land Economic Research.
  4. Ortalo-Magne, Francois & Rady, Sven, 1999. "Boom in, bust out: Young households and the housing price cycle," European Economic Review, Elsevier, vol. 43(4-6), pages 755-766, April.
  5. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  7. DiPasquale Denise & Wheaton William C., 1994. "Housing Market Dynamics and the Future of Housing Prices," Journal of Urban Economics, Elsevier, vol. 35(1), pages 1-27, January.
  8. DiPasquale, Denise, 1999. "Why Don't We Know More about Housing Supply?," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 9-23, January.
  9. Nigel Pain & Peter Westaway, 1996. "Modelling Structural Change In The UK Housing Market: A Comparison Of Alternative House Price Models," NIESR Discussion Papers 98, National Institute of Economic and Social Research.
  10. Nakagami, Yasuhiro & Pereira, Alfredo M., 1996. "Budgetary and Efficiency Effects of Housing Taxation in the United States," Journal of Urban Economics, Elsevier, vol. 39(1), pages 68-86, January.
  11. François Ortalo-Magné & Sven Randy, 2001. "Housing market dynamics: on the contribution of income shocks and credit constraints," LSE Research Online Documents on Economics 25049, London School of Economics and Political Science, LSE Library.
  12. Hakfoort, Jacco & Matysiak, George, 1997. "Housing investment in the Netherlands," Economic Modelling, Elsevier, vol. 14(4), pages 501-516, October.
  13. William C. LaFayette & Donald R. Haurin & Patric H. Hendershott, 1995. "Endogenous Mortgage Choice, Borrowing Constraints and the Tenure Decision," NBER Working Papers 5074, National Bureau of Economic Research, Inc.
  14. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
  15. Rosen, Harvey S., 1979. "Housing decisions and the U.S. income tax : An econometric analysis," Journal of Public Economics, Elsevier, vol. 11(1), pages 1-23, February.
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