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Housing Tenure Choice, Race and the Recommendations of the President’s Advisory Panel on Federal Tax Reform

Richard K. Green and Andrew Reschovsky
In this paper, we estimate the impact of tax policy on tenure choice using probit and housing expenditure regressions based on Public Use Microsample data from the 1990 and 2000 US Census. We find that tax policy has important impacts on tenure choice, and that the impact increased for blacks and hispanics between 1990 and 2000. We find that funding a tax credit with reductions in the mortgage interest deduction would increase home-ownership among minorities, but that the increase would be attenuated by lack of access to funds for down-payments. We also think a political consensus for reducing the mortgage interest deduction is unlikley, so we examined the possibility of giving households an option between a refundable credit and a deduction. Not surprisingly, this would also increase the ownership rate, but the impact would again be attenuated by liquidity constraints.