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The geography of mortgage interest deductions

Author

Listed:
  • Blouri, Yashar
  • Büchler, Simon
  • Schöni, Olivier

Abstract

We investigate the heterogeneous impact of the US federal mortgage interest deduction (MID) on households’ location and tenure decisions. We develop a spatial general-equilibrium model featuring non-homothetic preferences in which households can choose whether to claim the MID or a standard tax deduction. Repealing the MID decreases homeownership rates more strongly in central areas because owner-occupiers migrate to the countryside. Welfare increases slightly because positive externalities from less congested housing markets and undistorted tenure decisions outweigh productivity losses in central locations. An increase in standard tax deductions, as implemented in 2018 by the Tax Cuts and Jobs Act, leads to a similar welfare increase.

Suggested Citation

  • Blouri, Yashar & Büchler, Simon & Schöni, Olivier, 2023. "The geography of mortgage interest deductions," Journal of Urban Economics, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:juecon:v:138:y:2023:i:c:s0094119023000748
    DOI: 10.1016/j.jue.2023.103604
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    More about this item

    Keywords

    Tax deduction; Residential location; Tenure choice; Rental Markets; Housing supply;
    All these keywords.

    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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