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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 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.

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File URL: http://eprints.lse.ac.uk/49843/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 49843.

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Date of creation: Sep 2014
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Publication status: Published in The Review of Economics and Statistics, September, 2014, 96(4), pp. 618-637. ISSN: 0034-6535
Handle: RePEc:ehl:lserod:49843
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