IDEAS home Printed from
   My bibliography  Save this paper

Reluctant Savers and Mortgage Subsidies


  • Sevin Yeltekin

    (Carnegie Mellon University)

  • Antonio Bellofatto

    (University of Queensland)


The Mortgage Interest Deduction (MID) costs the federal government more than 200 billion dollars per year and ranks among the largest US tax subsidies. Despite the many proposals aiming to revise the MID, the ultimate effects of modifying it are still ambiguous and controversial. One argument against MID points to its regressivity, as it mostly benefits wealthy homeowners. On the other hand, homeownership could alleviate self-control problems if used as a commitment device. This paper focuses on this interaction between progressivity and self-control by evaluating MID reforms within a quantitative life-cycle model. Our model economy is populated by overlapping generations of households who are subject to labor productivity shocks and borrowing constraints. In each period, households choose between owning and renting. Homes can be financed by mortgage loans. Crucially, agents have Gul-Pesendorfer preferences which embed self-control issues. We calibrate the model to US data and study various policy reforms to the MID scheme such as, eliminating the MID, allowing to deduct only a fraction of mortgage interest payments, and replacing the MID for a subsidy on first homebuyers’ down payments via a revenue-neutral reform. We quantify the impact of these policies on redistribution, homeownership, social welfare, and government revenues.

Suggested Citation

  • Sevin Yeltekin & Antonio Bellofatto, 2016. "Reluctant Savers and Mortgage Subsidies," 2016 Meeting Papers 1164, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1164

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed016:1164. 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: . General contact details of provider: .

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.