IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Reluctant Savers and Mortgage Subsidies

Listed author(s):
  • 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.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" 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.

Paper provided by Society for Economic Dynamics in its series 2016 Meeting Papers with number 1164.

as
in new window

Length:
Date of creation: 2016
Handle: RePEc:red:sed016:1164
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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: (Christian Zimmermann)

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.