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The Mortgage Interest Deduction: Causes of Fluctuations in a Procyclical Tax Expenditure

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  • David Splinter

Abstract

The mortgage interest deduction (MID) is the largest source of US federal homeowner support. I estimate that this tax expenditure fluctuated between 0.2 and 0.9 percent of gross domestic product (GDP) over the past five decades. About half of these fluctuations were caused by changes in tax policy, rather than changes in the housing market. Fluctuations in the MID tax expenditure do not tend to move with homeownership rates; instead, they are procyclical, meaning the MID may exacerbate business cycles.

Suggested Citation

  • David Splinter, 2019. "The Mortgage Interest Deduction: Causes of Fluctuations in a Procyclical Tax Expenditure," Public Finance Review, , vol. 47(5), pages 807-827, September.
    • Handle: RePEc:sae:pubfin:v:47:y:2019:i:5:p:807-827
    DOI: 10.1177/1091142119854689
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    References listed on IDEAS

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    1. Martin Gervais & Manish Pandey, 2008. "Who Cares About Mortgage Interest Deductibility?," Canadian Public Policy, University of Toronto Press, vol. 34(1), pages 1-24, March.
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    6. Martin, Hal & Hanson, Andrew, 2016. "Metropolitan area home prices and the mortgage interest deduction: Estimates and simulations from policy change," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 12-23.
    7. Cole, Adam J. & Gee, Geoffrey & Turner, Nicholas, 2011. "The Distributional and Revenue Consequences of Reforming the Mortgage Interest Deduction," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(4), pages 977-1000, December.
    8. Christian A. L. Hilber & Tracy M. Turner, 2014. "The Mortgage Interest Deduction and its Impact on Homeownership Decisions," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 618-637, October.
    9. Jonathan A. Parker & Annette Vissing-Jorgensen, 2010. "The Increase in Income Cyclicality of High-Income Households and Its Relation to the Rise in Top Income Shares," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 1-70.
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    Cited by:

    1. Austin J. Drukker, 2021. "Implications of a Mortgage Interest Credit for the United States," Public Finance Review, , vol. 49(4), pages 573-588, July.

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