OUP - Abstract

The Effect of the Mortgage Interest Deduction on Mortgage Debt and Housing Demand

Dissertation School: University of Virginia

Pages: 195

Publication Date: January 2001

Availability:
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Access Number: 10718

Descriptors:
Mortgage interest deduction. Arbitrage. Taxes. Mortgages.

Abstract:
This doctoral dissertation evaulates the role of the mortgage interest deduction in spurring demand for mortgage borrowing and housing among recent home purchasers. Estimation results are used to predict average changes in mortgage borrowing, housing and loan-to-value (LTV) among recent purchasers if the mortgage interest deduction were removed. Results from the main econometric model and a more conventional alternative specification show that the magnitude of predicted response is quite sensitive to functional form assumptions. Some results for each specification are counterintuitive and point to the need for further research. The most sensible predictions indicate that mortgage borrowing is highly sensitive to the availability of the mortgage interest deduction, supporting the finding of earlier studies. However, results for the main model indicate that although mortgage demand may decline substantially, housing expenditures decline more, yielding a surprising increase in the average LTV ratio if the deduction were removed. [AUTHOR ABSTRACT MODIFIED]

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