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Tax‐Induced Portfolio Reshuffling: The Case of the Mortgage Interest Deduction
Author(s) -
Dunsky Robert M.,
Follain James R.
Publication year - 2000
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00816
Subject(s) - economics , portfolio , tax deduction , shared appreciation mortgage , financial economics , monetary economics , actuarial science , public economics , mortgage insurance , state income tax , tax reform , gross income , casualty insurance , insurance policy
Several provisions of the Tax Reform Act of 1986 had an indirect impact upon the demand for home mortgage debt. These include the elimination of the deductibility of interest on consumer credit, the increase in the standard deduction, and the reduction in the number of expenses that can be itemized. These provisions and the 1983–1989 panel sample of the Survey of Consumer Finances provide an opportunity to study the responsiveness of the demand for home mortgage debt to its tax status relative to the tax treatment of equity‐financed investments in housing and consumer credit. The results are strongly supportive of a highly elastic demand for mortgage debt with respect to its tax price. The best point estimate of this elasticity is –1, but substantial variation is found among certain groups. More generally, the results provide strong support for the phenomenon of portfolio reshuffling.