NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest

Patric H. Hendershott, Gwilym Pryce

NBER Working Paper No. 11489
Issued in July 2005
NBER Program(s):   AP   PE

Mortgage interest tax deductibility is needed to treat debt and equity financing of homes equally. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s.

download in pdf format
   (668 K)

email paper

This paper is available as PDF (668 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11489

Published: Hendershott, Patric H. and Gwilym Pryce. "The Sensitivity Of Homeowner Leverage To The Deductibility Of Home Mortgage Interest," Journal of Urban Economics, 2006, v60(1,Jul), 50-68. citation courtesy of

Users who downloaded this paper also downloaded these:
Glaeser and Shapiro w9284 The Benefits of the Home Mortgage Interest Deduction
Hendershott, Pryce, and White w9207 Household Leverage and the Deductibility of Home Mortgage Interest: Evidence from UK House Purchasers
Papke and Wooldridge t0147 Econometric Methods for Fractional Response Variables with an Application to 401(k) Plan Participation Rates
Hendershott and White w7928 Taxing and Subsidizing Housing Investment: The Rise and Fall of Housing's Favored Status
Poterba and Sinai w14253 Income Tax Provisions Affecting Owner-Occupied Housing: Revenue Costs and Incentive Effects
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us