Do Mortgage Subsidies Help or Hurt Borrowers?

David E. Rappoport
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David E. Rappoport: https://www.federalreserve.gov/econres/david-e-rappoport.htm

No 2016-081, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Mortgage subsidies affect homeownership costs by reducing effective mortgage rates and increasing house prices. I show analytically the role of mortgage subsidies in determining house price changes, economic incidence, and efficiency costs using a theoretical framework for applied welfare analysis. I derive simple expressions for these effects, as functions of reduced-form sufficient statistics, which I use to measure the effects from eliminating mortgage deductions. My main results characterize the distributional impact of mortgage subsidies among buyers and owners and how house price responses attenuate efficiency losses. My results provide broader methodological insights into the welfare analysis of credit policies.

Keywords: Public economics; Mortgage subsidies; Incidence; Optimal taxation; House prices; mortgage interest deductions; MID (search for similar items in EconPapers)
JEL-codes: H22 R21 R28 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2016-10-05
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-81

DOI: 10.17016/FEDS.2016.081

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