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Eliminating the mortgage tax deduction could boost homeownership
Tyler Cowen.
"(3) Implications of US Tax Policy for House Prices, Rents, and Homeownership
Kamila Sommer and Paul Sullivan
This paper studies the impact of the mortgage interest tax deduction
on equilibrium house prices, rents, homeownership, and welfare. We build
a dynamic model of the housing market that features a realistic
progressive tax system in which owner-occupied housing services are
tax-exempt and mortgage interest payments are tax-deductible. We
simulate the effect of tax reform on the housing market. Eliminating the
mortgage interest deduction causes house prices to decline, increases
homeownership, decreases mortgage debt, and improves welfare. Our
findings challenge the widely held view that repealing the preferential
tax treatment of mortgages would depress homeownership.
Here is
the link to the AER piece."
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