Mortgage interest tax deduction can increase market volatility – DNB paper

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High rates of tax deduction for interest payments on housing loans can significantly increase economic volatility, a working paper published by the Netherlands Bank argues.

In Macroeconomic effects of mortgage interest deduction, Cenkhan Sahin presents a general equilibrium model, based on data from the US housing market featuring tax-deductible interest payments on mortgages.

A higher deduction rate leads to higher house prices, and higher debt levels among households, the author argues, as

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