Kasper Kragh-Sørensen

This paper measures the welfare effects of removing the mortgage interest deduction under a variety of implementation scenarios. To this end, we build a life-cycle model with heterogeneous households calibrated to the U.S. economy, which features long-term mortgages and costly refinancing. In line with previous research, we find that most households would prefer to be born into an economy without the deductibility. However, when we incorporate transitional dynamics, less than forty percent of households are in favor of a reform and the average welfare effect is negative. This result holds under a number of removal designs.

Housing expenditure is by far the largest expenditure in a typical Nordic household, and housing plays a central role in social welfare. Recent decades have seen dramatic developments and changes in Nordic housing markets with rapid increases in building costs, price bubbles, lack of affordable and social housing, and deregulations of the rental markets. The 2021 issue of the Nordic Economic Policy Review deals with these issues, based on academic research by prominent Nordic researchers. On October 20th and 21st, the first drafts will be presented and commented by professionals from both academia and the public sector.