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The Benefits of the Home Mortgage Interest Deduction

  • Edward L. Glaeser
  • Jesse M. Shapiro

The home mortgage interest deduction creates incentives to buy more housing and to become a homeowner, and the case for the deduction rests on social benefits from housing consumption and homeownership. There is little evidence suggesting large externalities from the level of housing consumption, but there appear to be externalities from homeownership. Externalities from living around homeowners are far too small to justify the deduction. Externalities from homeownership are larger, but the home mortgage interest deduction is a particularly poor instrument for encouraging homeownership since it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time series which shows that the ownership subsidy moves with inflation and has changed significantly between 1960 and today, but the homeownership rate has been essentially constant.

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File URL: http://www.nber.org/papers/w9284.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9284.

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Date of creation: Oct 2002
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Publication status: published as The Benefits of the Home Mortgage Interest Deduction , Edward L. Glaeser, Jesse M. Shapiro. in Tax Policy and the Economy, Volume 17 , Poterba. 2003
Handle: RePEc:nbr:nberwo:9284
Note: EFG PE
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  1. Rosen, Harvey S & Rosen, Kenneth T, 1980. "Federal Taxes and Homeownership: Evidence from Time Series," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 59-75, February.
  2. Edward L. Glaeser & Bruce Sacerdote, 2000. "The Social Consequences of Housing," NBER Working Papers 8034, National Bureau of Economic Research, Inc.
  3. Voith, Richard & Gyourko, Joseph, 2002. "Capitalization of federal taxes, the relative price of housing, and urban form: density and sorting effects," Regional Science and Urban Economics, Elsevier, vol. 32(6), pages 673-690, November.
  4. Green, Richard K. & White, Michelle J., 1997. "Measuring the Benefits of Homeowning: Effects on Children," Journal of Urban Economics, Elsevier, vol. 41(3), pages 441-461, May.
  5. Epple, Dennis, 1987. "Hedonic Prices and Implicit Markets: Estimating Demand and Supply Functions for Differentiated Products," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 59-80, February.
  6. Denice DiPasquale & Edward L. Glaeser, 1997. "Incentives and Social Capital: Are Homeowners Better Citizens?," Harvard Institute of Economic Research Working Papers 1815, Harvard - Institute of Economic Research.
  7. Poterba, James M, 1984. "Tax Subsidies to Owner-occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 729-52, November.
  8. Henderson, J Vernon & Ioannides, Yannis M, 1983. "A Model of Housing Tenure Choice," American Economic Review, American Economic Association, vol. 73(1), pages 98-113, March.
  9. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," NBER Working Papers 8598, National Bureau of Economic Research, Inc.
  10. Harvey S. Rosen, 1985. "Housing Behavior and the Experimental Housing-Allowance Program: What Have We Learned?," NBER Chapters, in: Social Experimentation, pages 55-94 National Bureau of Economic Research, Inc.
  11. Kanemoto, Yoshitsugu, 1990. "Contract types in the property market," Regional Science and Urban Economics, Elsevier, vol. 20(1), pages 5-22, June.
  12. Edward L. Glaeser & Joseph Gyourko, . "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  13. James M. Poterba, 1992. "Taxation and Housing: Old Questions, New Answers," NBER Working Papers 3963, National Bureau of Economic Research, Inc.
  14. Edwin S. Mills, 1987. "Dividing up the investment pie: have we overinvested in housing?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 13-23.
  15. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
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