Implications of Fiscal Policy for Housing Tenure Decisions

Anastasia Girshina ()
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Anastasia Girshina: Department of Economics, University Of Venice CÃ Foscari

No 2014:, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: Many of the world's wealthy countries provide fiscal incentives to homeowners. Yet, the impact of such tax breaks on housing tenure decision is unclear. Using difference-in-differences approach, this study estimates the effect of mortgage interest deduction on homeownership in the United States. The identification relies on the large changes in income tax rates and standard deduction. The largest of these changes increased income tax rate by as much as 23,9% and decreased standard deduction by 7,2% between 2002 and 2004. The baseline estimates suggest that increase in income tax rate in a state that allows mortgage interest deduction is associated to 3 percentage points increase in homeownership relative to states that didn't change their fiscal policy and to 5 percentage points -relative to states that do not allow mortgage interest deduction but had a comparable increase in tax rates. The results are robust to a range of alternative specifications.

Keywords: fiscal policy; tenure choice; mortgage interest deduction; income tax; homeownership (search for similar items in EconPapers)
JEL-codes: E62 G11 H24 H31 K34 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2016
New Economics Papers: this item is included in nep-mac, nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2016:11

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