Blouri, Yashar; Büchler, Simon; Schöni, Olivier (June 2019). The Geography of Housing Subsidies (CRED Research Paper 25). Bern: CRED - Center for Regional Economic Development
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CRED working paper N_25.pdf - Published Version Available under License Creative Commons: Attribution (CC-BY). Download (2MB) | Preview |
We investigate the spatially heterogeneous impact of the US federal mortgage interest deduction (MID) on the location and tenure decisions of households. We develop a generalequilibrium model at the county level featuring an endogenous itemization of housing subsidies. Despite being an important tax expenditure, repealing the MID would only slightly lower homeownership rates while leaving welfare mostly unchanged. The policy is ineffective because it targets locations with congested housing markets, creating a spatial shift of the housing demand toward areas that capitalize the subsidy into higher prices. We provide evidence that a repeal of the MID is to be preferred to an increase of standard tax deductions as recently implemented under President Trump's administration.
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