BY Hamed Ghiaie and Jean-François Rouillard
http://d.repec.org/n?u=RePEc:shr:wpaper:18-01&r=dge
Through the lens of a multi-agent dynamic general equilibrium model, we examine the effects of four permanent changes in housing taxes and deductions on macroeconomic aggregates and welfare. Our main result is that the presence of borrowing-constrained bankers dampen the negative consequences of housing taxation on output. The long-run tax multipliers found range from -1.02 to -0.6. The reduction in the deduction of mortgage interest payments delivers the lowest multiplier. We also implement revenue-neutral tax reforms and find that the repeal of mortgage deductibility is the only policy that generates gains in output.
Deducting mortgage interest from taxes never struck me as a good policy, as it principally benefits people with large mortgages (and thus high debt and oversized houses) and high incomes (and thus high marginal tax rates and low propensities to consume). This paper seems to confirm that.
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