The Fiscal and Distributional Effects of Removing Mortgage Interest Tax Relief in EU Member States

Alexander Leodolter and Aleksander Rutkowski

No 72, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Mortgage interest tax relief contributes to the favourable tax treatment of owner-occupied housing com-pared to other investments. It thereby creates market distortions and may at the same time often not give rise to its intended effect, namely to increase homeownership. EU country-specific recommendations have asked for a reduction of the relief in Member States, also in view of risks to macroeconomic stability. The paper analyses the effects of removing mortgage interest tax relief on public revenue and expenditure, household disposable income and income inequality in 14 EU Member States with the microsimulation model EUROMOD. It finds that the tax relief largely benefits households at medium to high income levels. Consequently, its removal could help decrease income inequality in almost all Member States.

Keywords: The Fiscal and Distributional Effects of Removing Mortgage Interest Tax Relief in EU Member States; Leodolter; Rutkowski; mortgage interest tax relief; mortgage interest tax deductibility; immovable property; housing; taxation; owner-occupied housing; homeownership tax bias; EUROMOD; simulation; inequality. (search for similar items in EconPapers)
JEL-codes: D1 D14 D3 D31 H2 H21 H22 H23 H24 H31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2022-10
New Economics Papers: this item is included in nep-cmp, nep-eec, nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecobri:072

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