Running head: ARTICLE 3 MACROECONOMICS

Article 3 Macroeconomics

Mortgage Interest Tax Break Has No Effect on Homeownership, Study Finds

Richard Rubin

The Wall Street Journal

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Abstract

A study finds that mortgage interest deductions give incentives to buy bigger and more expensive

homes, but it doesnt change the fundamental decision about whether they will buy a home in the

first place. Essentially this interest rate deduction is aimed at increasing the aggregate demand in

the market of first time home buyers. Jonathan Gruber from Massachusetts Institute of

Technology stated on the topic that he believe that the governments fiscal policy is misdirected,

he believe if the government wants to increase the aggregate demand than they should create a

tax credit for first-time homebuyers. This studys finding appeared to have landed with a thud in

the current political debate, as lawmakers are considering one of the biggest revamps of the tax

system since 1986. It is expected that this fiscal policy will reduce governments tax collections

by $72.4 billion dollars in fiscal 2018. There are however proponents to the interest deductions,

one of which is William Brown; president of the National Association of Realtors. Mr. Brown

stated that removing incentives for homeownership, which includes the mortgage interest

deduction, would be a mistake. He believes comparing our housing market to that of a foreign

country only offers an apples-to-oranges scenario, and possibly putting homeowners underwater.

This leaves many questions to be considered, some of which include; the aggregate supply of

new houses being built, the equilibrium price level of the new houses, and the expected rate of

return on investments for firms that are in the housing construction industry.

References
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Rubin, R. (2014, July 24). Mortgage Interest Tax Break Has No Effect on Homeownership,

Study Finds. The Wall Street Journal. Retrieved from

https://blogs.wsj.com/economics/2017/07/24/mortgage-interest-tax-break-has-no-effect-

on-homeownership-study-finds/