The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans

Andrew Hanson

Public Finance Review, 2012, vol. 40, issue 3, 339-359

Abstract: This article examines the incidence of the largest housing-related subsidy in the federal budget, the home mortgage interest deduction (MID). The author uses the difference in interest rates for loans made around the MID limit to identify the incidence of the subsidy. Using data on individual mortgages originated in 2004, the author estimates that for every $1,000 borrowed without the MID, the interest rate on the entire loan decreases by between 3.3 and 4.4 percent. Results suggest that lenders capture between 9 and 17 percent of the subsidy created by the home MID through higher mortgage interest rates.

Keywords: housing subsidy; mortgage interest deduction; incidence (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:40:y:2012:i:3:p:339-359

DOI: 10.1177/1091142111422432

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