Limiting the Mortgage Interest Deduction by Size of Home: Effects on the User Cost and Price of Housing Across Metropolitan Areas

In this paper, I examine the user cost and home price implications of limiting the federal mortgage interest deduction (MID) based on the square footage of a home. I extend the standard user cost model to include a square footage-based cap on the tax-favored status of mortgage interest. I compare two policy alternatives: one that limits the marginal deduction based on home size, and another that removes the deduction on the home based on home size. There is substantial variation across metropolitan areas in both the number of homes exposed to each type of cap, the user cost increase, and the resulting expected price declines

Local Employment, Poverty, and Property Value Effects of Geographically-Targeted Tax Incentives: An Instrumental Variables Approach

The federal Empowerment Zone (EZ) program is a set of tax incentives targeted to areas of select cities. I estimate the effect of the EZ program on employment, poverty, and property values by comparing areas that received an EZ to areas that applied (and qualified), but were rejected. Because of endogeneity concerns, I use political representation to instrument for EZ designation. OLS results show a positive and statistically significant effect of the program on employment and poverty. IV estimates suggest the program had no effect on employment and poverty, and instead had a large statistically significant effect on property values

Size of Home, Home Ownership, and the Mortgage Interest Deduction

This paper offers an empirical test of the effect of the mortgage interest deduction (MID) on both the extensive (own vs. rent) and intensive (size of home) housing purchase margins. Using state level differences in MID availability to identify, I examine this relationship using standard ordinary least squares, instrumental variables, regression discontinuity, and sample selection estimation techniques. I find the MID to be responsible for a 10.9–18.4% increase in the size of home purchased, but that no relationship exists between the MID and home ownership. These results imply an elasticity of home size with respect to changes in user cost between −1 and −1.4

Utilization of Employment Tax Credits: An Analysis of the Empowerment Zone Wage Tax Credit

This paper provides estimates of utilization for the Empowerment Zone (EZ) wage tax credit, a subsidy claimed by employers who operate in and hire residents of federally designated areas experiencing economic distress. The EZ credit is currently the largest employer-based wage tax credit in the federal tax code in terms of dollars claimed, with almost $250 million claimed in 2002. I show that about 6.4 percent (and at least 3.5 percent) of the working age population was claimed under the EZ wage credit in 1999. In addition, I estimate that 24.2 percent (and at least 13.1 percent) of those employed inside of the target area were claimed for the credit. I create these national estimates of use with information on credit dollars claimed from the Internal Revenue Service and population data on the eligible population from the census. These measures of tax credit use are an alternative to the use rate of firms that are presented in the existing literature, and reveal how effective the credit is at reaching residents of the target area

The Incidence of the Mortgage Interest Deduction: Evidence from the Market for Home Purchase Loans

This article examines the incidence of the largest housing-related subsidy in the federal budget, the home mortgage interest deduction (MID). The author uses the difference in interest rates for loans made around the MID limit to identify the incidence of the subsidy. Using data on individual mortgages originated in 2004, the author estimates that for every $1,000 borrowed without the MID, the interest rate on the entire loan decreases by between 3.3 and 4.4 percent. Results suggest that lenders capture between 9 and 17 percent of the subsidy created by the home MID through higher mortgage interest rates

The Quaternion-Based Spatial Coordinate and Orientation Frame Alignment Problems

We review the general problem of finding a global rotation that transforms a given set of points and/or coordinate frames (the "test" data) into the best possible alignment with a corresponding set (the "reference" data). For 3D point data, this "orthogonal Procrustes problem" is often phrased in terms of minimizing a root-mean-square deviation or RMSD corresponding to a Euclidean distance measure relating the two sets of matched coordinates. We focus on quaternion eigensystem methods that have been exploited to solve this problem for at least five decades in several different bodies of scientific literature where they were discovered independently. While numerical methods for the eigenvalue solutions dominate much of this literature, it has long been realized that the quaternion-based RMSD optimization problem can also be solved using exact algebraic expressions based on the form of the quartic equation solution published by Cardano in 1545; we focus on these exact solutions to expose the structure of the entire eigensystem for the traditional 3D spatial alignment problem. We then explore the structure of the less-studied orientation data context, investigating how quaternion methods can be extended to solve the corresponding 3D quaternion orientation frame alignment (QFA) problem, noting the interesting equivalence of this problem to the rotation-averaging problem, which also has been the subject of independent literature threads. We conclude with a brief discussion of the combined 3D translation-orientation data alignment problem. Appendices are devoted to a tutorial on quaternion frames, a related quaternion technique for extracting quaternions from rotation matrices, and a review of quaternion rotation-averaging methods relevant to the orientation-frame alignment problem. Supplementary Material covers extensions of quaternion methods to the 4D problem.Comment: This replaces an early draft that lacked a number of important references to previous work. There are also additional graphics elements. The extensions to 4D data and additional details are worked out in the Supplementary Material appended to the main tex

The Effect of Location Based Tax Incentives on Establishment Location and Employment Across Industry Sectors

This article examines the potential for location-based employment tax incentives to have a differential effect on establishment location and employment across industry sectors. The authors model the differential effect of the location-based federal Empowerment Zone (EZ) wage tax credit on equilibrium labor and total cost savings across industry sectors. The model guides the empirical work, as the authors test the effect of the program across industry sectors. The empirical analysis shows that location-based tax incentives have a positive effect on firm location in some of the industries their model predicts and a negative effect in industries that could be crowded out

Field Experiment Tests for Discrimination against Hispanics in the U.S. Rental Housing Market

This article tests for discrimination against Hispanics in the U.S. rental housing market using e-mail correspondence with landlords advertising units online. We divide Hispanics into two groups: those that appear assimilated into American culture and recent immigrants. We find little difference in the treatment of assimilated Hispanics and whites; however, Hispanics we portray as recent immigrants receive less favorable treatment with margins of net discrimination as large as 6.89% of landlords. We also find discrimination varies significantly at the region level and by the ethnic composition of neighborhoods

Are Houses Too Big or In the Wrong Place? Tax Benefits to Housing and Inefficiencies in Location and Consumption

Tax benefits to owner-occupied housing provide incentives to consume housing, offsetting weaker disincentives of the property tax. These benefits also help counter the penalty federal taxes impose on households who work in productive high-wage areas, but reinforce incentives to consume local amenities. We simulate the effects of these benefits in a parameterized model, and determine the consequences of various tax reforms. Reductions in housing tax benefits generally increase efficiency in consumption, but reduce efficiency in location decisions, unless they are accompanied by tax rate reductions. The most efficient policy would eliminate most tax benefits to housing and index taxes to local wage levels

The Incidence of Tobacco Taxation: Evidence from Geographic Micro-Level Data

This paper uses a recent increase in Wisconsin’s tobacco tax as a natural experiment to measure the economic incidence of tobacco taxation, using micro-level data on cigarette prices from retail locations in Wisconsin and states that share its border. We find that Wisconsin’s $1 tobacco tax increase was over-shifted to consumers; they pay the entire amount of the tax as well as a premium of between 8–17 cents per pack of cigarettes. We also use geo-coded data to test if the incidence of the tobacco tax is different for locations near the border of states with different tobacco taxation