Housing Market Distortions and the Mortgage Interest Deduction

Andrew Hanson and Hal Martin

Public Finance Review, 2014, vol. 42, issue 5, 582-607

Abstract: Housing market distortions from the mortgage interest deduction (MID) typically focus on a single choice measure such as home size or self-reported amount of debt on a new mortgage. We estimate the amount of mortgage interest deducted on federal tax returns to capture the full range of housing market distortions from the MID. Our primary results show that for every one percentage point increase in the tax rate that applies to deductibility, the amount of mortgage interest deducted increases by US$303 to US$590. Empirical estimates imply elasticities of mortgage interest deducted with respect to the after-tax cost of housing between −0.78 and −1.62, and deadweight loss estimates ranging from 16 to 36 percent of MID tax expenditure.

Keywords: deadweight loss; housing subsidy; mortgage interest deduction; elasticity (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:42:y:2014:i:5:p:582-607

DOI: 10.1177/1091142113505679

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