Do People Respond to the Mortgage Interest Deduction? Quasi-experimental Evidence from Denmark
- (pp. 273-303)
Abstract
Using a major reform that scaled back the mortgage interest deduction for middle- and high-income households in Denmark, we study how tax subsidies affect housing decisions. We present four main findings. First, the mortgage deduction has a precisely estimated zero effect on homeownership for high- and middle-income households. Second, the mortgage deduction has a clear effect on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses. Third, the deduction has sizeable effects on household financial decisions, inducing them to increase indebtedness. Finally, the reduction of the tax subsidy lowered equilibrium house prices.Citation
Gruber, Jonathan, Amalie Jensen, and Henrik Kleven. 2021. "Do People Respond to the Mortgage Interest Deduction? Quasi-experimental Evidence from Denmark." American Economic Journal: Economic Policy, 13 (2): 273-303. DOI: 10.1257/pol.20170366Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- K34 Tax Law
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R31 Housing Supply and Markets
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