Housing Market Responses to the Mortgage Interest Deduction

62 Pages Posted: 2 Sep 2023

See all articles by Sven Damen

Sven Damen

University of Antwerp

Geert Goeyvaerts

KU Leuven - Department of Economics

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This paper examines the impact of tax subsidies for homeowners on the housing market. In 2015, the Belgian regions became responsible for the tax subsidy after having been under federal control. The average present value of the subsidies decreased significantly more in Flanders than in Wallonia. We exploit this variation in a difference-in-differences design to estimate the effect of its repeal on equilibrium prices and quantities. There are two important results. Changes in the subsidies largely capitalize in the price of housing and land, while their quantities remain unaffected. These results indicate that the subsidies are largely captured by current property owners and can be gradually reduced without disrupting the market.

Keywords: Mortgage interest deduction, Housing market, Economic incidence

Suggested Citation

Damen, Sven and Goeyvaerts, Geert, Housing Market Responses to the Mortgage Interest Deduction. Available at SSRN: https://ssrn.com/abstract=4559770 or http://dx.doi.org/10.2139/ssrn.4559770

Sven Damen

University of Antwerp ( email )

Prinsstraat 13
Antwerp, 2000

HOME PAGE: http://www.svendamen.com

Geert Goeyvaerts (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven, B-3000

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