The Mortgage Interest Tax Deduction and the Great Recession

25 Pages Posted: 10 Mar 2018

See all articles by Jonathan Hartley

Jonathan Hartley

Harvard University, Harvard Kennedy School (HKS), Students

Jonathan Dorf

University of Pennsylvania, The Wharton School, Students

Date Written: April 28, 2017

Abstract

This paper revisits the mortgage interest deduction (MID) in the U.S. and its distribution across households using ZIP-code level data from the IRS Statistics of Income. Since the Great Recession, the total and average amount of mortgage interest deducted has fallen significantly along with the number of deduction claimants as the home-ownership rate has declined dramatically since the peak of the mid-2000’s housing boom. We also use housing supply as an instrumental variable to better understand how geographic dispersion in housing prices can account for variation in ZIP-code average MID claims. While housing tax benefits are concentrated in high-income areas and regions with inelastic supply, the dollar share of the MID has fallen among the wealthy since the housing bust. We further discuss the implications for policy changes such as the prospects of capping or eliminating the MID or relaxing zoning laws.

Keywords: Public Economics, Mortgage subsidies, Incidence, Optimal Taxation, House Prices, Mortgage Interest Deductions

JEL Classification: H22, R21, R28

Suggested Citation

Hartley, Jonathan and Dorf, Jonathan, The Mortgage Interest Tax Deduction and the Great Recession (April 28, 2017). Available at SSRN: https://ssrn.com/abstract=3134107 or http://dx.doi.org/10.2139/ssrn.3134107

Jonathan Hartley

Harvard University, Harvard Kennedy School (HKS), Students ( email )

Cambridge, MA
United States

Jonathan Dorf (Contact Author)

University of Pennsylvania, The Wharton School, Students ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

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