Taxes and Borrower Behavior: Evidence from the Mortgage Interest Deductibility Limit

Andrew Hanson

Journal of Urban Economics, 2020, vol. 118, issue C

Abstract: This paper estimates the behavioral response to mortgage interest tax deductibility by studying the discrete change in the net-of-tax marginal interest rate that occurs at $1 million in mortgage debt. Using data on 2004-2016 mortgage originations, I estimate excess bunching in the loan distribution based on a counterfactual that accounts for bunching at salient loan amounts. Findings suggest excess of about 54,000 loans at the deductibility limit, or 4.5% of the sample. The level of bunching implies an average reduction in borrowing around the $1 million limit of 9.4 percent, and mortgage demand elasticities between − 0.132 to − 0.115 for home purchase loans. Estimated elasticities imply that from 2004-2016 the MID induced $49.52 billion in deadweight loss in the mortgage market.

Keywords: Mortgage Demand; Mortgage Interest Deduction; Tax Policy; Bunching (search for similar items in EconPapers)
JEL-codes: G18 G21 H24 R22 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0094119020300279
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:118:y:2020:i:c:s0094119020300279

DOI: 10.1016/j.jue.2020.103256

Access Statistics for this article

Journal of Urban Economics is currently edited by S.S. Rosenthal and W.C. Strange

More articles in Journal of Urban Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().