Economics & Finance / Macroeconomics / Fiscal Policy & Government Spending

Does the Mortgage Interest Deduction Actually Work? A Shocking Experiment from Denmark

Jonathan Gruber, Amalie Jensen, Henrik Kleven

Most governments believe that subsidizing homeownership through mortgage interest deductions creates stronger communities and higher property values. But what if this policy is completely ineffective? Using Denmark's 1987 tax reform as a natural experiment, researchers Jonathan Gruber (MIT), Amalie Jensen (Copenhagen University), and Henrik Kleven (Princeton) analyzed 30 years of administrative data. Their findings are stunning: the deduction had zero effect on homeownership rates. Instead, it only encouraged people to buy bigger houses and take on more debt. This video breaks down the evidence, the methodology, and the implications for housing policy worldwide. If you think tax breaks for homeowners are a no-brainer, you need to see this.