Amalie Sofie Jensen
Department of Economics
236 Julis Romo Rabinowitz Building
Princeton, NJ 08544
NBER Working Papers and Publications
|July 2017||Do People Respond to the Mortage Interest Deduction? Quasi-Experimental Evidence from Denmark|
with Jonathan Gruber, Henrik Kleven: w23600
Using linked housing and tax records from Denmark combined with a major reform of the mortgage interest deduction in the late 1980s, we carry out the first comprehensive long-term study of how tax subsidies affect housing decisions. The reform introduced a large and sharp reduction in the mortgage deduction for top-rate taxpayers, while reducing it much less or not at all for lower-rate taxpayers. We present three main findings. First, the mortgage deduction has a precisely estimated zero effect on homeownership. This holds even in the very long run. Second, the mortgage deduction has a sizeable impact on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses. Third, the largest effect of the mortgage deduction is on household financial decision...