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Housing subsidy or parental support: Crowding-out effect of mortgage tax deduction

Iwata, Shinichiro and Yukutake, Norifumi (2013): Housing subsidy or parental support: Crowding-out effect of mortgage tax deduction.

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Children may receive monetary transfers from their parents to realize the dream of homeownership. This raises the question of whether transfers received decrease if governments also provide a homeownership-related subsidy. The purpose of this paper is to empirically examine this question, using a sample of the Japanese home-buying households that are subsidized by a mortgage tax deduction (MTD) as a model case. In the empirical stage, we offer a test of the effect of the MTD on both the extensive (the probability of receiving transfers) and the intensive (the amount of transfers received) margins using the overall sample as well as subsample groups. The empirical results, which use the full sample, appear to indicate that the MTD has a tendency to crowd out transfers on both the extensive and the intensive margins. Subsample analysis demonstrates that the crowding-out effect is strengthened when parents' behavior is influenced by a relatively strong altruistic motive and a relatively weak exchange motive.

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