The Benefits of the Home Mortgage Interest Deduction
Edward L. Glaeser
Harvard University - John F. Kennedy School of Government, Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)
Jesse M. Shapiro
University of Chicago; National Bureau of Economic Research (NBER)
NBER Working Paper No. w9284
The home mortgage interest deduction creates incentives to buy more housing and to become a homeowner, and the case for the deduction rests on social benefits from housing consumption and homeownership. There is little evidence suggesting large externalities from the level of housing consumption, but there appear to be externalities from homeownership. Externalities from living around homeowners are far too small to justify the deduction. Externalities from homeownership are larger, but the home mortgage interest deduction is a particularly poor instrument for encouraging homeownership since it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time series which shows that the ownership subsidy moves with inflation and has changed significantly between 1960 and today, but the homeownership rate has been essentially constant.
Number of Pages in PDF File: 62
Date posted: October 19, 2002
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